Court Reinstates Independent Contractor Exception for Uber Drivers

May 2023 • Source: John H. Shaffery, Poole Shaffery

Proposition 22 was approved by voters in California in November 2020. It exempted app-based drivers from a 2019 state law known as AB5 that makes it difficult to classify workers as independent contractors rather than employees. It allows app-based transportation services to classify drivers as independent contractors as long as they are paid a minimum wage while transporting passengers and receive expense reimbursements and healthcare subsidies. For hundreds of thousands of drivers, Proposition 22 awarded independent contractor status but took away protections requiring gig workers across many industries to be classified as employees with stronger benefits such as a minimum wage, overtime and workers’ compensation in case of injury.

On March 13, 2023, the California Court of Appeals reversed a 2021 lower court ruling that struck down Proposition 22 on the basis that it violated the state constitution because it limited the legislature's power to include gig drivers within the scope of California workers' compensation law. The appeals court disagreed with that opinion and mostly upheld the provisions of Proposition 22, except for a provision enabling gig workers to join unions. The appeals court severed provisions of Proposition 22 restricting the California Legislature’s ability to authorize collective bargaining over drivers’ compensation, benefits, or working conditions and create rules singling out or otherwise putting unequal regulatory burdens upon app-based drivers.

Proposition 22 has remained in effect throughout the appeals process, and ride-sharing apps, including Uber and Lyft, can continue to treat their drivers as independent contractors. This represents a major victory for such companies because independent contractors do not receive the same legal protections as employees and can be up to 30% cheaper. Immediately after the Court of Appeals decision upholding Proposition 22, shares of Uber and Lyft rose by nearly 5%. However, the ruling is expected to be appealed to the California Supreme Court, so it remains to be seen how the ongoing Proposition 22 saga will develop.