California Voters Help App-based Transportation Companies by Approving Proposition 22

After the most expensive initiative campaign in state history, California voters approved Proposition 22 (“Prop 22”) by a 58% to 42% margin.  Prop 22, backed by app-based rideshare and delivery companies including Uber, Lyft, DoorDash, and Postmates, classifies drivers for such companies not as employees but rather as independent contractors, while providing them with some additional protections beyond those typically applicable to independent contractors.

Additional driver protections include:

  • a net earnings floor based on 120% of the minimum wage applied to a driver’s engaged time and 30 cents, adjusted for inflation after 2021, per engaged mile;
  • limiting app-based drivers from working more than 12 hours during a 24-hour period, unless the driver has logged off for 6 uninterrupted hours;
  • companies must provide healthcare subsidies equal to 82% of the average Covered California (CC) premium for each month for drivers who average at least 25 hours per week of engaged time during a calendar quarter, and 41% of the average CC premium for drivers who average between 15 and 25 hours per week of engaged time;
  • companies must provide or make available occupational accident insurance, disability, and accidental death insurance.

For the app-based rideshare and delivery companies who sponsored Prop 22, it provides the economic benefits derived from the flexibility of an independent contractor relationship and regulatory certainty. For example, Prop 22 preempts local ordinances in a variety of areas including (1) minimum wage; (2) scheduling; (3) leave; (4) healthcare subsidies; and (5) driver licensing and insurance requirements (Bus. & Prof. Code § 7464).

Prop 22 also contains language making it extremely difficult for the Legislature to amend the law.  Thus, amendments must be approved by a 7/8ths majority of the Legislature, and they must be “consistent with, and further[] the purpose of” Prop 22.  (Bus. & Prof. Code § 7465.)  Notably, any amendment that would change the independent contractor status of app-based drivers does not “further the purposes of” Prop 22.  Moreover, any proposed legislation that prohibits or “imposes unequal regulatory burdens” on app-based drivers based on their classification status while allowing other individuals to perform a rideshare or delivery service is subject to the 7/8ths majority vote for approval.

App-based rideshare and delivery companies are defending numerous private lawsuits and state actions about whether or not their drivers are misclassified as independent contractors.  Prop 22 may help defend against these lawsuits.

In treating app-based drivers as contractors, Prop 22 creates an exception to the “ABC test” (in place based on AB5 and the California Supreme Court’s 2018 decision in Dynamex).  The ABC test presumes that workers are employees unless a company proves that the employee:

(A) Is free from the control and direction of the company in performing work, both practically and in the contractual agreement between the parties; and

(B) Performs work that is outside the usual course of the company’s business; and

(C) Is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the company.

The second prong of the new ABC test created significant risk for app-based rideshare and delivery companies, who must prove that providing rides (or deliveries) is “outside the usual course of the company’s business” in order to preserve independent contractor status for drivers.  Prop 22 eliminates that risk.

We have substantial experience in classification issues, including with respect to contractor and employee issues.   If you are interested in discussing these issues, or have any questions about this blog, please feel free to contact us.