Gibson, Dunn & Crutcher's Ted Boutrous. Credit: ALM
State appellate justices on Tuesday pushed back on arguments by Uber and Lyft that a trial court judge abused his discretion by issuing a preliminary injunction—now stayed—forcing the ride-hailing companies to classify their drivers as employees.
During an online hearing, Associate Justice Jon Streeter of the First District Court of Appeal said the companies never responded to San Francisco Superior Court Judge Ethan Schulman's questions about what a narrow injunction—perhaps one that only affected frequent drivers—might look like.
"You just passed up the chance to do that," Streeter told the companies' lawyers, suggesting they had focused solely on "swinging for the fences" and completely defeating the injunction sought by the state and three cities.
"That's like saying 'I'm going to ruin your business. How can I make it better?'" said Uber's attorney, Theodore Boutrous Jr., global co-chairman of Gibson, Dunn & Crutcher's litigation group.
Uber and Lyft have argued that Schulman's injunction, issued Aug. 10, was premature, too broad and did not account for the operating practices of the two ride-hailing giants or the impacts it would have on thousands of drivers. Boutrous and Rohit Singla, a Munger, Tolles & Olson partner representing Lyft, said that forcing the companies to treat drivers as employees would require completely new business models and irreparably harm drivers.
"People are not going to magically become employees," Boutrous said. "The company is going to have to make hard choices."
Democratic lawmakers and labor groups hailed the preliminary injunction as a major victory in forcing Uber and Lyft to comply with the California Supreme Court's 2018 ruling in Dynamex and related legislation, AB 5. The subsequent appeal of the injunction attracted amicus briefs from the U.S. Chamber of Commerce, the International Brotherhood of Teamsters and other interest groups with a stake in any potential national expansion of California's employee-friendly, worker-classification laws.
The three-justice panel, comprising of Streeter and Associate Justices Stuart Pollak and Tracie Brown, peppered the companies' lawyers with questions about complying with AB 5. Couldn't the companies still provide shift flexibility to drivers as employees? Brown asked.
"Uber would just have to turn into a different company," a drastic step at the preliminary-injunction stage, Boutrous said.
How did Schulman abuse his discretion in issuing the preliminary injunction? Brown asked.
"The government has shown zero evidence of irreparable injury," Singla said.
Pollak noted that, if adding in time spent waiting for riders, some drivers may be earning less than minimum wage. "If it turns out that they should have been receiving minimum wage, your agreements [with drivers] require individual arbitration. … Are you suggesting the specter of literally thousands of claims for back wages is insignificant?" Pollak continued.
Singla said there's no proof in the record that any driver is making less than minimum wage.
The justices also questioned the state's case with Pollak asking whether Deputy Attorney General Matthew Goldman had "shrugged off" potential harm to Uber and Lyft.
Goldman noted that the impact to the companies would be "exclusively financial" and that "financial harms are not irreparable," particularly with Uber and Lyft "sitting on" billions of dollars in cash reserves.
Cheryl Miller
Cheryl Miller, based in Sacramento, covers the state legislature and emerging industries, including autonomous vehicles and marijuana. She authors the weekly cannabis newsletter Higher Law. Contact her at [email protected]. On Twitter: @CapitalAccounts