Passage of California's Prop 22 Provides Relief for Ridesharing Companies; Could Ripple to Other State and Federal Law
- Prop 22 allows ridesharing apps to treat drivers as independent contractors for tax and some benefit purposes, but it does provides some employment-like protections.
- Prop 22 establishes a minimum wage, provides a health care stipend, requires reimbursement of vehicle costs, and establishes coverage for occupational injuries and discrimination protections.
- Despite the success in California, ridesharing companies still face litigation in other jurisdictions, including Massachusetts, New Jersey, and Pennsylvania, where they are accused of misclassifying workers.
- How the U.S. Department of Labor and Internal Revenue Service will treat ridesharing companies under the Biden administration remains to be seen.
The Bottom Line
California voters overwhelmingly approved Proposition 22. The ballot measure exempts the app-based rideshare and delivery companies from AB 5, which made it more difficult to classify drivers as contractors by codifying what’s known as the ABC test. (Our previous analysis of AB 5 and the ABC test is here).
Most notably, Prop 22 makes drivers utilizing app-based rideshare or delivery services independent contractors, regardless of the state Labor Code or other statutes that would otherwise classify those in this group as employees. In exchange, Prop 22 establishes a hybrid model and grants drivers certain job protections:
- Earnings Guarantee: Drivers must be compensated at least 120 percent of the applicable minimum wage while driving. Companies may not deduct any portion of gratuity a passenger or customer provides to a driver.
- Health Insurance Stipend: Companies shall provide a health care subsidy of a varying amount depending on the average amount of time the driver spends driving via the platform, per week.
- Injuries on the Job: Companies must maintain insurance to cover drivers’ medical expenses or lost income resulting from injuries suffered while using the platform.
- Required Rest Period: Drivers may not work more than a cumulative total of 12 hours, in any 24-hour period, unless the driver has logged off for an uninterrupted period of six hours.
- Background Check: Drivers must first undergo a local and national background check. Companies may also choose to monitor continually the criminal history of drivers.
- Harassment Policies: Companies must develop and implement a harassment policy, which, at a minimum, outlines what behaviors constitute sexual harassment; provides a process for drivers, customers, and passengers to submit harassment complaints; and indicates that the company will conduct a prompt investigation once a complaint is received. The policy also must state that neither drivers nor customers or passengers will be retaliated against as a result of making a good faith complaint or participating in an investigation.
- Driver Safety Training: Drivers must complete a company-provided safety training that includes collision, avoidance, and defensive driving; identification of “collision-causing elements”; recognition and reporting of sexual assault and misconduct; and food and safety information (for drivers delivering food).
Drivers’ Independent Contractor Status Challenged in Other States
As we previously reported, the Commonwealth of Massachusetts and the state of California are actively involved in litigation against the ridesharing and app-based companies, claiming that the drivers are employees and entitled to the standard benefits of employment that are not generally afforded to contractors. Although the passage of Prop 22 may negate the California litigation, the Massachusetts litigation will continue.
The United States Court of Appeals for the Third Circuit held in Razak et al. v. Uber Technologies Inc. that a lower court prematurely dismissed the Uber Black drivers’ claims that they are misclassified as contractors. The lower court granted summary judgment in favor of Uber, finding that the company did not exercise sufficient control over the drivers’ employment, and therefore they were accurately classified as contractors under the Fair Labor Standards Act and Pennsylvania law. The Third Circuit remanded the case for trial, finding a jury should decide the drivers’ status.
The Pennsylvania Supreme Court has already found Uber drivers to be employees for unemployment compensation purposes in Lowman v. Unemployment Compensation Board of Review. New Jersey is also seeking $16 million from Lyft and $650 million from Uber, alleging that the ridesharing companies misclassified drivers as independent contractors and are liable for unemployment and disability insurance taxes and penalties.
Reportedly, a collaborative of app-based companies spent over $200 million on the Prop 22 ballot campaign in California. Despite the campaign’s hefty price tag, the passage of Prop 22 might inspire the companies to lobby state legislatures to exclude drivers from the definition of employees.
Even if efforts to avoid misclassification claims are successful at the state level, it remains to be seen what approach the U.S. Department of Labor and Internal Revenue Service will take under a new presidential administration.
Attorneys in Ballard Spahr’s Labor and Employment Group assist with employee misclassification concerns, COVID-19 matters, and other workplace issues.
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