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California Upholds Prop 22: Drivers Can Be Contractors, at least in the Golden State

On Monday, a California appellate panel upheld the California voter-approved Proposition 22, which permitted gig companies like Uber, Lyft, and DoorDash, to classify their drivers as independent contractors instead of employees.

The decision largely reverses the 2021 Superior Court ruling that invalidated Proposition 22 as being “constitutionally problematic.”  Proposition 22 passed in November 2020 with 58% of voters in favor of the new law.  

In the wake of the Superior Court’s 2021 decision, the state of California and Protect App-Based Drivers and Services (as intervenor backed by Uber and Lyft), appealed the decision to California’s First Appellate District. California argued that Proposition 22 did not transgress upon the Legislature’s plenary authority to implement and enforce workers’ compensation laws, while the Uber and Lyft backed intervenor argued that under Independent Energy Producers v. McPherson it has been established in California that the rights of voters to pass statewide initiatives coexists with the Legislature’s power.

In its opinion the majority agreed, finding that McPherson held that the California Constitution doesn’t grant the state Legislature exclusive jurisdiction over establishing workers’ compensation laws, but rather it gives such authority to both Legislature and the state’s voters.

Next stop for Proposition 22 will likely be the California Supreme Court where opponents like the SEIU and some of its member drivers could look to overturn this week’s ruling.

The majority opinion explained that the California Constitution gives authority to make laws impacting workers’ compensation to the Legislature and the voters of the state. Proposition 22 was an exercise of such powers. In other words, lawmaking authority over workers’ compensation is not the exclusive dominion of the Legislature.

At the heart of Proposition 22 was a carveout from California’s 2019 controversial A.B. 5 workers classification bill, for certain delivery drivers working for app-based companies.  A.B. 5 implemented a new three-part test to classify workers.  The application of A.B. 5’s test made it nearly impossible for the likes of Uber, Lyft and DoorDash to classify their workers as independent contractors.

This week’s ruling was a major win for gig-delivery companies, whose business model is dependent on their ability to hire drivers as independent contractors. Their model only works if the company can avoid business expense associated with traditional employees like overtime and minimum wage.

Brody and Associates regularly advises management on complying with the latest local, state and federal employment laws.  If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560.