Uber and Postmates are trying to halt California’s freelancer law

It’s cheaper to litigate and lose than to comply.

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Tomorrow California’s new law governing how companies have to treat contractors and other freelancers goes into effect, but Uber and Postmates have sought an injunction to stop that happening. The New York Times reports the companies filed a lawsuit in a federal court in California on Monday and argue the legislation, if passed, would prove cripplingly expensive for them.

The law in question is called Assembly Bill 5 and would require gig-economy workers like Uber or Lyft drivers, or delivery people like those who work for Postmates and Uber Eats, be classified as employees rather than contractors. That'd also mean the companies employing them would have to provide some of the benefits full-time staff enjoy.

Potentially precedent-settings –– Aside from wanting to limit their overheads, liability, and obligations to employees, Uber and Postmates are fighting Assembly 5 because of the precedent it could set. If California pushes the law through its likely other states will follow.

Uber is already loss-making and its share price has tumbled since the company went public. Suddenly being saddled with hundreds of millions of dollars of new bills for things like unemployment insurance, healthcare, and Social Security could make reaching profitability an even more Herculean task.

Worth the risk –– The other reason the companies are contesting the law comes down to the relative risk and reward of doing so. In all such cases, even if the chance of winning a case is slim, the cost of losing is so high that it’s worth fighting, no matter the legal fees. In the event the companies win, the costs amount to little more than a rounding error.

Further, even if they only manage to postpone the inevitable, they’ll still save a fortune for every week they stave off having to comply. Of course, if Uber gets its way, instead of having to pay its drivers more, it’ll simply help them earn more by letting them do more gig work instead.