Lyft and Uber, the two largest ride-hailing services are accused of violating labor law by shutting down their taxi-alternative services in Austin last month. According to twin federal proposed class-action lawsuits filed Thursday, the ridesharing companies closed shop without giving their drivers a federally required notice. Drivers for the Austin, Texas operation allege that, under federal law, the company owes them 60 days of back pay as well as other benefits.

The tandem suits challenge Uber’s and Lyft’s insistence that, as independent contractors, drivers are not employees and therefore not entitled to job protections or standard benefits. The suits were filed in San Francisco federal court, near both companies’ headquarters, brought by ex-Lyft driver David Thorton (Thornton v. Lyft) and former Uber driver Todd Johnston (Johnston v. Uber ). The plaintiffs’ cases invoke the Worker Adjustment and Retraining Notification (WARN) Act of 1988, a federal law which requires most companies employing more than 100 workers to notify workers at least 60 days prior to any mass layoff. According to the lawsuits, their failure to do so entitles each driver back pay of up to 60 days as well as related health benefits.

Independent Contractor or Employee?

Lyft and Uber ceased their Austin operations on May 9, after they were unable to overturn city requirements that drivers submit to fingerprinting-based background checks, putting around 10,000 drivers out of work. The claim that the Austin Lyft and Uber drivers were “independent contractors”, and not regular employees is at the core of the companies’ defense. Classifying employees as independent contractors allows a company to avoid providing benefits such as job protections, providing healthcare and retirement benefits. The lawsuits allege that because the companies provided instruction videos, gave procedure manuals, controlled driver scheduling, set prices, and assigned riders to drivers, the drivers should be considered employees – the suit against Uber claims that “Uber and its (drivers) are not engaged in a distinct occupation or business, but instead, they “implement and are integral to Uber’s core business of providing ride-hailing services.”

Impact on On-Demand Service Providers

These two cases boil down to whether the drivers are actually considered standard employees or are only independent contractors. The cases are significant, as they relate to other on-demand services. If the court finds that the Austin drivers were not independent contractors, but were, in fact, employees, it would significantly impact Lyft’s and Uber’s bottom line by requiring them to provide health care and many other benefits to their drivers. It would also set precedence for other workers in similar on-demand environments to claim similar benefits, such as worker’s compensation, unemployment benefits, the right to unionize, as well as the right to seek tips and mileage cost reimbursements.