Uber and Postmates file a lawsuit against the new California labor law

Uber Technologies and Postmates Inc have filed a lawsuit in an attempt to block a new California labor law, AB5. The two app-based businesses say that the law is unconstitutional and affects operations as it makes it illegal for businesses to classify their workers as independent contractors.  

The supporters of AB5, such as labor groups, claim that it strengthens employee rights and pushes companies to treat their workers as employees and offer higher wages and additional benefits such as health insurance.

Uber Says The Law Will Endanger Employment For Independent Contractors

App-based businesses such as Uber who have over 450,000 contractors in total providing services such as driving and food delivery, are not happy about the new legislation and feel that it particularly harms their business model.

They also argue that instead of helping workers, this law will likely hamper their work flexibility and endanger employment as a whole as fewer people would be earning via such gigs if they had to be counted as full-time employees. They also further stated that the law was unconstitutional as it was discriminating against gig-based businesses.

AB5 Will Lead To Higher Unemployment And Increased Costs

Uber and Postmates made it clear in their lawsuit that AB5 would have an adverse effect on employment and business costs. The suit claims that a company such as Lyft’s operating expenditure would increase by 20% which can eventually translate into as many as 300,000 people losing an income source.

However, a labor union, Teamsters Local 396 and the American Labor Union support AB5 and stated that it must be protected against all odds. Ron Herrera, a rep from Teamsters Local 396, said it is imperative that workers are heard and their needs are protected.

Gig economy companies like Uber, Postmates, Doordash, and Lyft are all on the same page and have already set aside a large sum of $90 million to have the bill balloted in November 2020, ensuring that gig-based companies are excluded from the requirements stated in the law.

Currently, Uber and Postmates are actively trying to fight the law from going into effect on Wednesday. AB5 is even direr for such companies since California is known to have a reputation of signing statewide bills that are quickly adopted by the other states and become national law.

Uber’s stock has lost around 2.5% in the last 5 days in the stock market.