Proposition 22

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On November 3, 2020, California voters approved Proposition 22 which provided several regulations relating to drivers for app-based transportation or delivery companies such as Uber, Lyft, DoorDash etc. As a result, a new law, The Protect App-Based Drivers and Services Act was enacted and added to the Business and Professions Code as sections 7448–7467.

One of the sections (section 7451) provided that such drivers are considered “independent contractors” as opposed to “employees” of the company assuming the following conditions apply:

  1. The company does not unilaterally prescribe specific dates, times of day, or a minimum number of hours during which the app-based driver must be logged into the network company’s online-enabled application or platform.
  2. The company does not require the app-based driver to accept any specific rideshare service or delivery service request as a condition of maintaining access to the network company’s online-enabled application or platform.
  3. The company does not restrict the app-based driver from performing rideshare services or delivery services through other network companies except during engaged time.
  4. The company does not restrict the app-based driver from working in any other lawful occupation or business.

Pursuant to section 7451, if all four of the above conditions are met, the drivers are not covered by California workers’ compensation laws, which generally apply to employees and not to independent contractors.

Plaintiffs Hector Castellanos, Joseph Delgado, Saori Okawa, Michael Robinson, Service Employees International Union California State Council, and Service Employees International Union filed a lawsuit in the Alameda Superior Court against the State alleging that section 7451 violates the California Constitution which provides that the Legislature has the sole power to enact legislation relating to workers compensation. The State prevailed in both the trial court and the Court of Appeal. In Hernandez v. State of California the California Supreme Court recently affirmed holding that section 7451 does not violate the California Constitution because there is nothing in the Constitution which prevents the voters from exercising their “initiative power” to legislate on matters relating to workers compensation.

The Supreme Court’s decision is a huge victory for app-based transportation and delivery companies in that it alleviates a significant regulatory uncertainty and eliminates a very significant legal risk. Had Proposition 22 been invalidated by the California Supreme Court, these companies, and others, would have potentially faced substantial additional costs associated with reclassifying drivers as employees and potential retroactive liability for violations of various wage and hour and other employment laws. This could have led to a complete disruption of the current business model for driver-based app companies, and even resulted in these companies ceasing operations in California.

Regardless of this opinion, future legal challenges by drivers and unions are certainly going to occur. So, stay tuned!