Here's What Prop 22 Means for the Gig Economy

Uber drivers and others aren't employees, says appeals court

Uber is available in 500 worldwide cities, including Los Angeles.
Ted Soqui / Contributor / Getty Images

A ruling by a California state appeals court will let app-based rideshare and delivery service companies keep treating drivers as independent contractors, reinstating Proposition 22, a 2020 state law that had been repealed in 2021 by a lower-level court.

Monday's ruling said companies such as Uber, Lyft, and Doordash don't have to count workers as employees, although companies can't prevent independent drivers from joining a labor union and collectively bargaining for better working conditions.

Overall, the ruling is considered a defeat for workers and unions since it deprives them of protections and benefits guaranteed to regular employees. The Service Employees International Union (SEIU) is expected to appeal the decision to the California Supreme Court.

Key Takeaways

  • Following Monday's California appeals court ruling, app-based rideshare and delivery service drivers will keep being treated as independent contractors under Prop 22.
  • Drivers won't be prevented from joining a labor union and collective bargaining.
  • The Service Employees International Union (SEIU) is expected to appeal the ruling to the CA State Supreme Court.
  • Affected gig workers won't fall under S.B. 5, which forces a test that classifies many gig workers as employees and grants them additional benefits and rights.

What the Ruling Means for Gig Workers

The benefits battle in California began with the passage of Assembly Bill 5 (A.B. 5) in 2019, which set new standards for determining whether a worker would be considered an employee or an independent contractor.

The status of gig workers other than app-based rideshare and delivery service drivers doesn't change under this week's ruling. They workers will still fall under A.B. 5, which applies a three-part (ABC) test to determine whether a worker is an employee or independent contractor.

This test assumes a worker is an employee unless the company can prove all the following:

  • The worker is free to perform services without the control or direction of the company.
  • The worker is performing work tasks that are outside the usual course of the company’s business activities.
  • The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Although A.B. 5 has been law since 2019, it's far from settled. It faces legal challenges, including a motion from the California Trucking Association and Owner-Operator Independent Drivers Association asking for a preliminary injunction against enforcement of A.B. 5 in the trucking industry.

As for drivers for Uber, Lyft, Doordash, and other similar companies, they will, for now fall under Prop 22, including its alternative benefits, but without an opportunity to be considered employees under A.B. 5's ABC test.

This means that, unlike covered gig workers, they won't qualify for worker’s compensation, paid sick and family leave, unemployment insurance, and certain payment obligations to the state, including payroll taxes, social security, and disability insurance.

Assembly Bill 5 vs Prop 22

Prop 22 was created and promoted by rideshare and delivery companies to exempt their drivers from A.B. 5. Prop 22 passed in November 2020 and included “alternative benefits” for drivers, such as a guaranteed minimum wage and health insurance subsidies for drivers who averaged 25 hours of work a week.

Three drivers and the Service Employees International Union filed a lawsuit, arguing that Prop 22 was illegal because it limited the legislature’s authority to pass laws about workers’ compensation programs.

In 2021, a lower court judge agreed and ruled that companies such as Uber and Lyft weren't exempt from A.B. 5. Monday's state appeals court ruling reversed that decision, allowing the companies to treat their drivers as independent contractors.

Uberization of the workforce vs the ABC test

One of the main reasons all eyes are on California following the reinstatement of Prop 22 is what critics call the "Uberization" of the workforce. The term first became popular in France as a description of a service-based economy, as opposed to one based on production.

In California, the term has been used to describe replacing salaried workers with independent contractors. It's is feared that "what happens in California will not stay in California" but spread to include the passage of Prop 22-like laws in state legislatures around the country. Opponents fret the spread will lead to companies eliminating costly salaried employees in favor of less expensive gig workers.

The corporate perspective is different. If, instead of laws allowing companies to hire independent contractors, legislatures pass "A.B. 5-like" laws forcing them to treat those workers as much more expensive employees, that could drastically increase the cost of doing business.

Article Sources
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  1. "Proposition 22."

  2. CalMatters. "Court upholds California Prop. 22 in big win for gig firms like Lyft and Uber."

  3. "Dynamex Operations West, Inc. v the Superior Court of Los Angeles County."

  4. Fullerton Observer. "Know the Law: Assembly Bill 5 (AB5)."

  5. Essec Business School. "Uberisation, explained in 3 minutes by Professor Xavier Pavie."

  6. Bloomberg. "The Gig Economy Is Coming for Millions of American Jobs."

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