Proposition 22, the costliest ballot initiative in California history, has come down in favor of Uber, Lyft, DoorDash, and other app-based delivery and transportation companies. Approximately 60 percent of California voters said “yes” to app-based companies’ efforts to avoid application of AB 5 and maintain business models that hinge on classifying their drivers as independent contractors rather than employees. The measure will become effective on the fifth day after the California Secretary of State certifies the election results.

Proposition 22 was borne out of the California legislature’s passage of Assembly Bill 5, referred to as AB 5, in September 2019. AB 5, which codifies the “ABC” test articulated by the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903, became effective on January 1, 2020. It provides that a worker is presumed to be an employee unless the “hiring entity” can demonstrate all of the following: (A) the worker is free from the hiring entity’s control and direction with respect to the performance of the work, both in the contract and in fact; (B) the worker is performing work outside the hiring entity’s usual course of business; and (C) the worker is customarily engaged in a trade, occupation, or business that involves the same type of work as that being performed. Although the legislature subsequently codified several statutory exemptions to AB 5, it rebuffed app-based companies’ efforts to obtain a similar exemption, undoubtedly because AB 5 was primarily directed at the industry. Consequently, Uber, Lyft, and DoorDash funded an effort to place Proposition 22 on the ballot, with the intent to create the much-needed AB 5 exemption via voter approval.

Mere months before the voters decided Proposition 22, the California Attorney General, joined by several city attorneys, filed a civil enforcement action against Uber and Lyft. On August 10, 2020, the San Francisco Superior Court granted a preliminary injunction restraining Uber and Lyft from classifying their drivers as independent contractors. The court of appeal affirmed the lower court’s ruling on October 22, 2020. Thus, it appeared that rideshare and delivery companies were either going to have to completely overhaul their business structure or cease operating in California altogether. Proposition 22 grants them a last-minute pardon, allowing them to conduct business as usual, albeit under certain conditions.

Proposition 22 will be codified at Business & Professions Code sections 7448-7467 and referred to as the “Protect App-Based Drivers and Services Act.” It allows app-based delivery and transportation companies to classify drivers as independent contractors so long as the following conditions are met: (1) the company does not require the driver to work certain days, times, or a certain number of hours; (2) the company does not require the driver to accept a specific rideshare or delivery service request; (3) the company does not restrict the driver from performing services for other rideshare or delivery companies, other than during “engaged time”; and (4) the company does not restrict the driver from working in any other lawful occupation or business.

Although app-based drivers will remain independent contractors and, thus, will not be entitled to minimum wage, overtime, unemployment, workers’ compensation, and other protections afforded to employees, Proposition 22 does provide the following labor and wage benefits to drivers:

• For all “engaged time,” which is the time between when a driver accepts a rideshare or delivery request and completes the request, a minimum earnings guarantee, excluding gratuities, tied to 120 percent of the applicable minimum wage with no maximum, in addition to per-mile compensation in the amount of 30 cents per mile for each mile driven during engaged time which increases with inflation each year after 2021;
• Quarterly healthcare subsidies based on the amount of engaged time each week. Drivers with an average of 25 hours or more per week of engaged time will receive a payment greater than or equal to 100% of the average Affordable Care Act (ACA) contribution, while drivers with an average of 15 hours but less than 25 hours of engaged time per week will receive a payment greater than or equal to 50% of the average ACA contribution;
• Occupational accident insurance to cover medical expenses and lost income resulting from on-the-job injuries, which include disability payments equal to 66% of the driver’s weekly earnings, and also accidental death insurance for drivers’ families;
• Mandated rest time of six hours for every 12 hours logged in and driving in a 24-hour period; and
• Protection against discrimination and harassment via policies prohibiting the same and providing for complaint and investigation processes.

Proposition 22 also contains protections for the public, which include criminal background checks for drivers; zero-tolerance policies for drug- and alcohol- related offenses; and driver safety training. Further, Proposition 22 makes it a misdemeanor to impersonate an app-based driver.

Although Proposition 22 likely moots the recent preliminary injunction enjoining Uber and Lyft from classifying their drivers as independent contractors, open questions remain in the multitude of pending litigation involving app-based drivers. Nevertheless, Uber, Lyft, and other app-based rideshare and delivery companies can rest assured that Proposition 22 will protect their way of doing business for the foreseeable future. It will be very difficult, if not impossible, for opponents to amend or overturn Proposition 22, as voter approval or a 7/8 supermajority in the Legislature will be required.  And while Proposition 22 does not eliminate AB 5 altogether, it should send a message to the legislature that Californians reject the principles of Dynamex and the ABC test and prefer a more flexible system that allows options for how people work.  Perhaps this will lead to creation of a third worker classification – something other than a pure employee or independent contractor and Proposition 22 seems to be a good step in that direction.  It’s time to move away from work rules that were created in the 1940s that simply don’t work in a modern economy.

Do you have questions about how this update may affect you?  For further information contact:

Nicole Roysdon (nroysdon@wilsonturnerkosmo.com)

Emily J. Fox (efox@wilsonturnerkosmo.com)

Lois M. Kosch (lkosch@wilsonturnerkosmo.com) 

Wilson Turner Kosmo’s Special Alerts are intended to update our valued clients on significant developments in the law as they occur. This should not be considered legal advice.