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What are the implications of Prop 22 for employers?

by | Jul 7, 2021 | Employer Defense

In November of last year, California voters approved Proposition 22, also called the App-Based Drivers as Contractors and Labor Policies Initiative. Prop 22 allows companies such as Uber and Lyft to categorize app-based drivers as independent contractors rather than employees. The proposition will have a far-reaching impact on employers’ classifications of employees long into the future, especially as app-based companies continue to grow.

A costly and controversial proposition

Last January, the Assembly Bill 5 went into effect, which made it more difficult for gig employers to categorize workers as contractors and thereby withhold benefits such as healthcare. Proposition 22, however, grants an exemption for companies that use app-based drivers to deliver goods to consumers. Companies including the aforementioned Uber and Lyft plus Door Dash and Instacart poured more than $200 million into pro-Proposition 22 funding, making it the most expensive ballot measure in the history of California.

Its success is a boon for employers, as it may save billions of dollars in compensation and other benefits. Labor activists, however, have criticized the measure, arguing that it removes crucial rights for app-based drivers. Its critics have already mounted a legal battle to have it repealed.

A Supreme Court battle?

The proposition faces its first challenge in the form of Castellanos v. California. The Service Employees International Union (SEIU) and four rideshare drivers filed suit against the state. The plaintiffs’ lawsuit has three tenets:

  • Proposition 22 unconstitutionally limits the legislature’s ability to extend benefits
  • Its definition of “amendment” is too broad
  • It violates California’s rule that ballot initiatives must address only one subject

The Supreme Court of California rejected a direct review. The suit must proceed to a lower court first and work its way up through appeal. If the lawsuit does reach the State Supreme Court or even the United States Supreme Court, the ruling will set a precedent for the classification of independent contractors for years to come – not only in California but also in other states.

The future for employers and drivers

This legislation will pave the way for other app-based companies to categorize workers as independent contractors. As the gig economy continues to grow, more and more companies may require drivers who use apps for scheduling. It may also prompt employers to get creative about incorporating app-based drivers into their business model to take advantage of the exemption it grants. Whether Proposition 22 will remain in place or even becomes the norm remains to be seen, but it is no doubt only the first of many pieces of legislation that will impact the ever-changing gig economy.