Judge Says California Gig-Economy Law Is Unenforceable

​California voters approved Proposition 22 in November 2020, allowing gig-economy companies to classify app-based ride-hailing and delivery drivers as independent contractors if certain criteria are met. On Aug. 20, a state judge said the law is unconstitutional and unenforceable.

California uses a three-pronged "ABC" test to determine worker classification. The stringent test renders most workers employees unless their jobs fall under an exception.

Proposition 22 allows app-based companies to continue to classify drivers as independent contractors, so long as they provide drivers with certain benefits and develop anti-discrimination and sexual-harassment policies. The measure was supported by prominent ride-hailing and food delivery services, including Uber, Lyft and DoorDash.

The state judge, however, said that Proposition 22 limits the California Legislature's authority and ability to make future amendments to the law.

We've rounded up articles and resources from SHRM Online and other trusted media outlets on the news.

Limits on the Legislature

Alameda County Superior Court Judge Frank Roesch ruled that Proposition 22 is unconstitutional and unenforceable.

"A prohibition on legislation authorizing collective bargaining by app-based drivers does not promote the right to work as an independent contractor, nor does it protect work flexibility, nor does it provide minimum workplace safety and pay standards for those workers," he wrote. "It appears only to protect the economic interest of the network companies in having a divided, ununionized workforce, which is not a stated goal of the legislation."

(CNN)

Companies Plan to Appeal Ruling

Uber, Lyft and DoorDash spent more than $200 million to pass Proposition 22, and they plan to appeal the decision. The ruling serves as a setback for the companies in their fight to preserve their business models, but they don't need to make any immediate changes. 

"We believe the judge made a serious error by ignoring a century's worth of case law requiring the courts to guard the voters' right of initiative," said Geoff Vetter, a spokesman for the Proposition 22 campaign. 

However, Bob Schoonover, a labor union president who was involved in the lawsuit, said the companies "tried to boost their profits by undermining democracy and the state constitution."

(The Wall Street Journal)

The Battle Continues

The legal battle over Proposition 22 won't end any time soon. As the appeal process ensues, the courts will need to decide whether to temporarily halt Proposition 22 or allow the companies to keep their business models until an ultimate ruling is made in the case. Gig-economy companies are facing similar challenges in Massachusetts and other locations that have stringent worker-classification laws.

(Bloomberg)

Exception to ABC Test

Under California's ABC test, all three of the following factors must be met for a worker to be properly classified as an independent contractor:

• (A) The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
• (B) The worker performs tasks that are outside the usual course of the hiring entity's business.
• (C) The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.

The ABC test applies to the California Labor Code, the Unemployment Insurance Code and the Industrial Welfare Commission wage orders, unless another definition of "employee" is provided.

Uber, Lyft, and several grocery and food delivery services secured enough signatures to get the gig-worker classification issue on the ballot, and the majority of California voters decided that app-based drivers should continue to be classified as independent contractors. The ballot measure called for covered drivers to receive certain benefits, including minimum earnings and health care subsidies.

(SHRM Online)

[Want to learn more about California employment law? Join us at the SHRM Annual Conference & Expo 2021, taking place Sept. 9-12 in Las Vegas and virtually.]

The Independent-Contractor Debate

Employees are entitled to minimum wage, overtime pay and other benefits that are not generally provided to independent contractors. In California, employees are also entitled to business-expense reimbursement. So gig-economy companies would have to significantly change their business models if they were required to reclassify drivers as employees.

Uber and Lyft representatives have stressed that most drivers want the flexibility that their independent-contractor business models provide. "As an employer, however, Uber would be forced to actively manage drivers' schedules, hiring a specific number of employees based on a baseline volume of consistent business," said Uber Chief Executive Officer Dara Khosrowshahi. "Uber would hire fewer drivers to each do more trips and require them to work a certain number of hours."

California officials, however, have said that drivers are denied important benefits. "Drivers incur substantial expenses when they work," said San Francisco Deputy City Attorney Matthew Goldberg during a court challenge to Uber's and Lyft's business models. Drivers pay for gas, vehicle repairs and maintenance, and other expenses. "Just looking at that, it impacts every single driver on every single shift," Goldberg said.

(SHRM Online)

Visit SHRM's resource hub page on independent contractors.