Uber will refuse to comply with new California law requiring them to reclassify contract workers as employees after ride-share company claims drivers are 'not core to their business model'

Uber will refuse to comply with a new bill passed in California Wednesday that says they must reclassify their drivers as employees rather than contractors, arguing that drivers aren’t core to its ride-share business model.

Known as AB-5, the bill requires companies in the state - such as Lyft and Uber - to treat workers as employees by providing them with the full benefits and protections the designation necessitates.

Under the motion’s terms, the title of employee must be issued to any worker the company exerts control over in terms of performance of their task, or if the role carried out by the worker is central to the employer’s regular business.

But in a dramatic push-back, Uber’s chief legal officer Tony West voiced confidence over drivers being able to maintain their independent status irrespective of the bill -insisting drivers are not central to the company’s operations.

‘Several previous rulings have found that drivers’ work is outside the usual course of Uber’s business, which is serving as a technology platform for several different types of digital marketplaces,’ West said in a lengthy statement, adding that Uber was ‘no stranger to legal battles.’

West said Uber will continue to view their drivers as independent works, even after the bill’s January 1 commencement date, for the company believes the vast majority of their workers want ‘flexibility’, not total employment.

The ride-share company’s resistance to the bill comes as just one example of companies throughout the state panicking as the bill edges closer to becoming reality.

Contrary to contractors, employees are required to receive minimum-wage, overtime payment and sick leave. The companies they work for must also contribute to unemployment insurance and worker’s compensation funds on their employees’ behalf. Contractors must also pay their own expenses.

Should Governor Gavin Newsom sign the bill into law as expected, more than one million contractors across the state of California are set to be affected, including janitors, construction workers and beauty technicians.

Doctors, insurance agents, and real estate agents, were all made exempt from the bill after months of jostling between lawmakers.

Previous to the bill’s inception, if a worker thought they had been wrongly categorized as a contractor, it was up to them to take up issue with their employers in court. However, AB-5 gives cities across California the power to enforce the law by suing companies that fail to comply with it.

In its IPO filing earlier this year, Lyft said that classifying drivers as employees ‘may require us to significantly alter our existing business model and operations.’ 

Similarly, Uber echoed that ‘any such reclassification would require us to fundamentally change our business model, and consequently have an adverse effect on our business and financial condition.’

Such adjustments may require them to schedule drivers in shift patterns rather than allowing them to decide for themselves when, where and how long they want to work for.

While the bill makes no mention of enforcing a shift-pattern for employees, companies like Uber may find benefit in restricting drivers from working when there are less customers, with the revenue brought in not being offset their hourly rate as employees.

Both of the companies are still fiercely fighting the bill, with West saying Uber will ‘continue to defend our ability to enable on-demand, independent work.’

Uber, Lyft and on-demand delivery service DoorDash recently pledged to spend a combined $90 million on a ballot initiative in response to the bill.

Bradley Tusk, a regulatory adviser who has worked with Uber in the past, told CNN the company has so far taken ‘a passive, slow approach to AB-5 and it hurt them.’

Tusk instead suggested the companies could have embraced forward thinking policies that would’ve nullified arguments from critics, such as proving full-time employee benefits for drivers on the platform whose work exceeds 40 hours a week.

‘Hopefully they'll frame the narrative better and be more proactive as new states take up the issue,’ Tusk said, adding the fact ‘these companies could not avert this bill through their lobbying and power reveals that their goodwill among the public and politicians has eroded.’

The bill has come at a troublesome time for Uber and Lyft, whose stocks are trading at near all-time lows, with investors concerned about steep losses and doubts over whether either of the two companies will ever be able to turn a profit.

Uber has laid off more than 800 employees since it went public in May, with more let go earlier this week.