(Bloomberg) -- Uber and Lyft suffered a setback in their months-long fight against rules that could force them to reclassify California drivers as employees.

The ride-hailing companies, along with other businesses that depend on gig-economy work, have been talking with unions about potential deals that could exempt them from state rules making it harder to treat gig workers as independent contractors and avoid additional employment costs.

One of those unions, the International Brotherhood of Teamsters, told California’s governor Thursday it’s against proposals to grant technology platform companies a pass. The move was conveyed in a letter sent by California’s State Building and Construction Trades Council on behalf of a list of affiliates including the Teamsters. It’s a blow to companies’ efforts to avoid making sweeping changes to their businesses.

“Our executive board voted unanimously to oppose any legislative proposal allowing technology platform companies to exploit workers by treating them as independent contractors with substandard protections,” according to the letter, which was sent to the leaders of the state Senate and Assembly as well as to Governor Gavin Newsom. The letter also voices the groups’ “strong opposition” to creating a separate “third category” of worker, apart from employee or independent contractor, as a special exemption for “technology platforms that actively seek to advance a more regressive economy.”

A top California Teamsters leader called out the ride-hailing companies more directly in a Thursday interview. Randy Cammack, president of the Teamsters council covering southern California, said that he is in “full agreement” with the building trades letter and opposes any exemptions for Uber or Lyft from the state’s new standard for who’s an employee. “You give these guys a break, and all these other employers would say, ‘Well, why shouldn’t we be exempt?’” he said. Cammack said his council participated in talks with Uber, but “won’t be attending any more” in the future. “Everything that I’ve heard that they want to do, I’m in total opposition to,” he said. Uber’s growth has already hurt Teamster industries like delivery, said Cammack.

Story continues

Ride-hailing and food delivery companies are trying to defuse a major threat to their business models: a new standard dictating that workers can’t be considered independent contractors under California wage law unless, among other things, they are doing work that is outside the usual course of a company’s business. The state supreme court established the standard last year, and the senate is now considering a bill, passed by the assembly in May, that would codify it and apply it to a wide swathe of laws.

For a company whose whole business rests on contract workers exempt from employment laws like overtime pay, the new rules threaten huge added costs and liabilities. After last year’s landmark court ruling put gig companies on the defensive, they warned privately that the new employment rules would “decimate businesses” and appealed unsuccessfully to state lawmakers and the then governor, Jerry Brown, to shield them.

Governor Newsom, a Democrat friendly to both labor and the technology industry, has been urging the two to reach a compromise. His chief of staff has held meetings in recent months with union leaders, CEOs and workers on the issue, said people familiar with the matter, who asked not to be identified because they weren’t authorized to speak publicly. If no such deal materializes and the law advances through the state senate, Newsom could be forced to either infuriate business by signing the bill or unions by vetoing it. Newsom’s office didn’t immediately respond to an inquiry Thursday on the letter.

“Lyft is advocating for an approach in line with the interests of our driver community, by modernizing century-old labor laws that make it difficult to provide both flexibility and benefits,” CJ Macklin, a spokesman for Lyft, said Thursday in response to the unions’ letter. Davis White, a spokesman for Uber, said in an emailed statement: “We remain actively committed to discussions with labor organizations and lawmakers to improve the quality and security of independent work.”

Representatives for gig-economy companies, including DoorDash Inc., Instacart Inc., Lyft Inc., Postmates Inc. and Uber Technologies Inc., have met recently with leaders from major unions. The companies have proposed introducing legislation that would extend new perks to their drivers while excluding them from state-mandated protections for employees. In a joint editorial last month from the chiefs of Uber and Lyft, they offered to create a benefits fund for drivers, a pay guarantee for the time spent picking up or dropping off passengers and an association to advocate on their behalf.

A spokeswoman for the Teamsters international union declined to comment on how the building trades letter applies specifically to Uber. Doug Bloch, political director for the Teamsters council covering Northern California, said in an emailed statement that the union is committed to passing the bill pending in the state senate. “We think every worker should have the right to organize and the fundamental labor protections that helped build this country’s middle class,” he wrote.

The Teamsters, a union with 1.4 million members in North America, could play a pivotal role in derailing any efforts to sell a deal to other unions and to the Democrats who control both chambers of the legislature. If the industry can’t win over the Teamsters, firms could still hope to find compromise with other prominent unions that companies have met with, which include the Service Employees International Union and the United Food & Commercial Workers.

One asset for Uber is Laphonza Butler. She was president of one of the SEIU’s largest local unions until last year and is now a partner at SCRB Strategies, a California-based business and political consulting firm. There, Butler has advised and represented Uber in its dealings with organized labor on employment issues and also serves as an adviser to the presidential campaign of Kamala Harris, the Democratic senator from California. An Uber spokesman said Butler brings a valuable perspective to the company’s efforts to improve work for drivers, and a spokesman for Harris declined to comment. Butler and her firm didn’t respond to requests for comment.

In recent months, SEIU leaders have entertained the prospect of a bargain with companies. A late 2018 memo circulated by the SEIU’s California council outlined the possible benefits of legislation like what has since passed the assembly, including strengthened worker protections and, by forcing changes to companies’ business models, a path for “potentially the entire gig sector” to organize. It also laid out a list of drawbacks: many years of anticipated litigation, a “slow and difficult” path to unionization and the possibility that the governor, state referendum process or U.S. Congress subvert their efforts. “Companies will fight this option fiercely and on a united front,” according to a copy of the memo reviewed by Bloomberg.

More recently, SEIU California circulated a summary of potential alternative legislation. The proposal would provide “flexibility to platform companies and platform workers,” according to the memo. It would create systems for collective bargaining, “portable benefits” accounts and minimum pay guarantees but would allow companies that meet certain criteria to seek “flexible alternative standards” in place of those covering other employers in areas such as overtime, breaks and worker’s compensation.

Such an approach alarms some drivers. Cutting a deal that deprives app-based workers of full employee rights “will absolutely damage the future for workers,” said Nicole Moore, a Lyft driver and organizer with the advocacy group Rideshare Drivers United in Los Angeles. She said any kind of special arrangement would reverberate far beyond ride-hailing and food delivery. “Workers can be deployed from apps in any industry,” Moore said.

In public, union leaders have taken a hard line. Mary Kay Henry, international president of the SEIU, said in February that the union intends to “reach an agreement that’s not a concession.” Henry discussed the issue in a recent meeting with Newsom’s chief of staff.

Bob Schoonover, president of the SEIU’s California State Council, said Thursday that the group “has not and would not support any third classification or interpretation of employee classification that would undermine employee status and protections” granted by last year’s court ruling and the proposed law. SEIU intends to help workers “maintain and expand upon” those protections instead, he said in an emailed statement. Schoonover described the memos exploring potential compromises on employment rights as “ideas and concepts” that “should not be construed” as something more significant.

Vikrum Aiyer, vice president of public policy at food-delivery provider Postmates, urged unions not to disengage from discussions. “California and our governor are uniquely poised to confront their first future-of-work test by enacting pro-worker and pro-innovation policies that modernize the safety net,” Aiyer said in an emailed statement, “but only if labor remains at the table.”

Some business leaders are frustrated that Governor Newsom hasn’t done more to protect them, said Michael Lotito, co-chair of the law firm Littler’s Workplace Policy Institute and a member of the U.S. Chamber of Commerce’s labor and employment law litigation committee. California’s policy debate “is the most significant labor and employment issue that we have today in the country,” he said.

Lorena Gonzalez, an assemblywoman who authored the labor bill, said she has no intention of amending it to exclude gig workers. “If people don’t want to pass a bill because it doesn’t take care of multi-billion-dollar corporations, then that’s up to them -- and if the governor doesn’t want to sign one, that’s up to him,” she said. “I have every indication to believe it will in fact pass and that the governor will sign it.”

(Updates with Uber comment in the ninth paragraph.)

To contact the reporter on this story: Josh Eidelson in Washington at jeidelson@bloomberg.net

To contact the editors responsible for this story: Wes Kosova at wkosova@bloomberg.net, Mark Milian, Emily Biuso

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.