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AB 5 mandates unemployment insurance for ride-hailing companies

On Behalf of | Jun 1, 2020 | Insurance Law

As Uber became a household name in cities all over the world, the ride-hailing company continued to classify its drivers as independent contractors. In January 2020, California began enforcing a law, Assembly Bill 5, requiring both Uber and Lyft to categorize drivers as employees.

In May 2020, California Attorney General Xavier Becerra filed a claim against the companies in San Francisco County Superior Court, asking for hundreds of million dollars in legal restitution and civil penalties for violations to this law.

Understanding AB 5

Under the bill, Lyft and Uber must provide basic protections to their drivers, including but not limited to:

  • Unemployment insurance, which covers time away from work as a driver
  • A guaranteed minimum wage, which in California is $12 per hour
  • Paid sick leave
  • Overtime pay, which would be time-and-a-half ($18) for every hour worked over 40 in a week

Controversy surrounding the bill

As the date approached for AB 5 to become active, Uber made app changes meant to highlight the independence of their drivers. Both Uber and Lyft, along with Door Dash, have spent $30 million each to seek an exemption from AB 5.

In a statement, an Uber spokesperson announced the company’s intention to continue fighting the bill while expanding protection for its drivers with a guaranteed minimum wage and other upgraded benefits. The firm also stressed its intention to make it easier for those out of work to begin driving for Uber.

Impact for drivers

Ride-hailing service drivers and delivery drivers who are currently out of work struggle to receive unemployment insurance while courts decide whether to exempt Lyft, Uber and Door Dash. These workers say they hear conflicting advice even from professionals and are unsure how to correctly file for benefits.

Because these companies are so large, California may hesitate to pursue further enforcement of the law. Such a suit could be costly for the state as well as set a precedent for how the state will treat ride-hailing service drivers.