Why is the State of California Suing Uber and Lyft?


In early May, the State of California brought a lawsuit against both Uber and Lyft. These companies are major players in the gig economy, creating jobs that Americans work on the side for additional income. 

So, why is California suing these companies? The State of California passed a bill called AB- 5, and this went into effect on January 1, 2020. The State of California has brought the suit against these companies because their business models defy this piece of legislation. Allegedly, under this new legislation, Uber and Lyft are misclassifying their employees as independent contractors.

What is the California Assembly Bill 5? 

This bill was created to address the classification of employees vs. independent contractors in the State of California. This is often referred to as the “gig economy” bill, as these gig-style jobs often blur the lines between employers and independent contractors. 

The bill addresses this gray area by laying out the definition of an independent contractor very firmly. According to AB-5, all workers are considered employees unless they fit the following specific qualifications.

  1. The worker is free to perform services without the control or direction of the company.
  2. The worker is performing work tasks that are outside the usual course of the company’s business activities.
  3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Given these requirements, the State of California argues that all of the independent contractors working for Uber and Lyft are actually employees.

What are the Details of the Lawsuit?

Uber and Lyft lawsuit

The State of California filed the suit against Uber and Lyft on the grounds that they are not providing their workers with the protections that employees are entitled to. Under the new stipulations of AB-5, these companies should have re-classifying their workers as employees, not independent contractors.

The State of California is requiring that both of these companies reclassify all their workers as employees and provide the benefits that they are entitled to as well as penalties for neglecting to follow the guidelines set out in AB-5. 

For more information, check out these posts from CNN Business and Forbes.

How Could This Affect ACA Reporting?

While the AB-5 only applies to mandated reporters in the State of California, this decision of this lawsuit will have repercussions for businesses nationwide, and it could drastically change their ACA reporting responsibilities. 

If companies like Uber and Lyft were to reclassify all of their independent contractors as employees, they would have to expand the benefits that they offer them. This could create a lot of additional expenses and reporting for companies that are involved in the gig economy. 

The ACA is a complex piece of legislation that continues to evolve and expand. When it comes to your own ACA reporting, IRS compliance doesn’t have to be complicated. ACAwise provides a full-service solution to ACA reporting. Don’t go it alone when you can have a team of experts on your side! 


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