A California appeals court issued a ruling mostly restoring the Proposition 22 ballot measure, which allows Uber and Lyft to classify its drivers as contractors. A lower court ruling had previously invalidated the ballot measure as unconstitutional, and the decision is likely to be appealed to the state’s supreme court.
Background: In 2019, California passed the infamous A.B. 5 law which created the nation’s strictest test for independent contractor status (the ABC test), under which thousands of California contractors – including Uber and Lyft drivers – would become classified as employees. In response, Uber and Lyft championed a ballot measure in 2020 – known as “Prop 22” – that would exempt platform drivers from the law while requiring companies such as Uber and Lyft to provide certain benefits and standards to such drivers, including minimum wage and insurance. The ballot measure was successful before being promptly thrown out by a California Superior Court as unconstitutional in 2021.
The appeals court reversed course and held that Prop 22 was mostly constitutional, allowing companies such as Uber and Lyft to, once again, classify their drivers in the state as contractors. The court found the state’s constitution provides authority over workers’ compensation to state voters, and because Prop 22 mainly concerned the same, it was valid. The court did find one provision restricting the legislature’s ability to provide drivers with bargaining rights to be unconstitutional and severed it from the rest of the ballot measure.
More contractor developments on the horizon: Uber and Lyft’s victory may be short lived, even if the case is not successfully appealed. The U.S. Department of Labor is expected to issue its final rule on independent contractor status before the end of the year. While the rule is not expected to be as strict as California’s A.B. 5 law, it could nonetheless similarly restrict companies’ ability to classify workers as contractors, particularly in the gig sector. Meanwhile, the National Labor Relations Board is currently deliberating a case that could also restrict contractor status and potentially make thousands more workers eligible for unionization. The actions by both agencies will likely be challenged in federal court.
Outlook: The case is almost certain to be appealed to the California Supreme Court, which could potentially flip the case back again. In the meantime, employers should begin preparing for a federal rule that will likely fall somewhere between California’s A.B. 5 law and the current landscape.