Debate over whether Uber and Lyft drivers can be considered independent contractors rather than employees led the California Public Utilities Commission, or CPUC, to presume these app drivers are employees and to enforce them as such.

Enacted in January, California’s AB 5 outlines three criteria to identify workers as independent contractors financially and lawfully. These include the hiree doing work outside of the usual course of the business, being free from control over their work for the company and having an already established trade before being hired. Uber and Lyft, also known as transportation network companies, or TNCs, argue that their drivers meet these criteria and that therefore, the companies do not have to pay unemployment for the drivers to the state.

The CPUC, however, stated in a “scoping memo” that TNC drivers must still be treated as employees, as lawsuits and ballot measures are still in progress. 

“The CPUC’s immediate priority is to ensure that TNCs are reminded of CPUC’s regulatory role over their responsibility for worker’s compensation insurance coverage for their employees, and that AB 5 applies as well,” said CPUC spokesperson Terrie Prosper in an email.

If Lyft goes ahead with the switch, the company said, 900,000 app-based drivers could lose the ability to earn through platforms entirely, resulting in negative economic consequences for the entire state.

California Attorney General Xavier Becerra and city attorneys of Los Angeles, San Diego and San Francisco filed a lawsuit May 5 against Uber and Lyft for allegedly misclassifying their drivers as independent contractors.

According to an attorney general press release, the designation of TNC drivers as independent contractors allegedly deprives workers of critical workplace protections, including the right to minimum wage and overtime, as well as access to paid sick leave, disability insurance and unemployment insurance.

A study conducted by UC Berkeley’s Center for Labor Research and Education found that Uber and Lyft would have had to pay more than $400 million in the last five years into California’s unemployment insurance fund if their drivers were employees rather than independent contractors.

“Enough is enough. California law makes it clear that Uber and Lyft drivers are employees,” said Los Angeles City Attorney Mike Feuer in a press release. “We allege Uber and Lyft defy this mandate, exploit their drivers, and unlawfully shift the costs of their responsibilities as employers to California’s taxpayers.”

According to Lyft spokesperson CJ Macklin, 71% of drivers in the latest independent poll said they want to remain independent contractors.

Lyft and Uber are supportive of the Protect App-Based Drivers and Services coalition’s Protect App-Based Drivers and Services Act, which is a ballot measure that will be voted on in November. This would create protections for their drivers while still classifying them as independent contractors, according to the coalition’s website.

A report released in May by global consulting firm Berkeley Research Group shows that the switch to employee classification would accompany a change in treatment, including more rigid scheduling and payment, and would increase the companies’ operating costs.

“If California regulators force ride-share companies to change their business model, it would affect our ability to provide reliable and affordable services, along with threatening access to this essential work Californians depend on,” said Uber spokesperson Davis White.

Aryia Dattamajumdar contributed to this article.