Over the last several years, worker classification has been among one of the most debated issues in the area of employment law. With the ruling in Dynamex Operations West, Inc. v. Superior Court, 416 P.3d 1 (Cal. 2018) and the passage of Assembly Bill 5 (AB 5) in the past two years, many employers have had to either reclassify their workers or face legal action. AB 5’s strict “ABC Test” created a more challenging environment for businesses in the state.
In particular, gig economy companies which rely on independent contractors have been inundated with litigation. Uber, Lyft, DoorDash, Instacart are currently embroiled in lawsuits with the state over their classification of drivers as independent contractors. However, earlier this month, these companies won a landslide victory with the passage of Proposition 22 1 .
Proposition 22 allows the network company 2 to classify app-based drivers as independent contractors if the following 4 conditions are met:
First, the company does not unilaterally assign specific dates, times of day, or a minimum number of hours that the app-based driver must be logged into the company’s online-enabled application.
Second, the company does not require the driver to accept any specific rideshare or delivery service request as a condition of maintaining access to the company’s platform.
Third, the company does not restrict the driver from performing rideshare services or delivery services through other companies during the engaged time.
Fourth, the company does not restrict the driver from working in any other lawful occupation or business.
Proposition 22 went further than just classifying drivers as independent contractors. In addition, pursuant to the ballot measure, these rideshare and delivery service companies will be required to provide contractors with certain benefits, including:
Minimum Wage
Drivers will earn 120% of the minimum wage for engaged time. Engaged time is time that a driver spends between accepting a ride or delivery request and the completion of that request.
Expenses
Beginning in 2021, drivers will be reimbursed for vehicle expenses, such as gas and wear-and-tear, at a rate of 30 cents per engaged mile. The rate per mile will be adjusted annually to account for inflation.
Rest Policy
Drivers will be prohibited from working more than 12 hours in a 24-hour period for a single rideshare or delivery company unless the driver has been logged off for an uninterrupted six hours.
Insurance
Occupational accident insurance will cover medical expenses and lost income that results from injuries suffered while the driver was online but not engaged in personal activities. Companies will provide disability payments equal to 66% of the driver’s average weekly earnings from all the companies as of the date of injury for up to the first 104 weeks. Companies will also be required to make available accidental death insurance for the benefit of a driver’s spouse, children, or other dependents when the driver dies while using the app.
Healthcare Subsidiaries
The company will provide healthcare stipends equal to 41% of the average California Covered (CC) premium for each month for drivers who average between 15 to 25 hours per week of engaged time during a calendar quarter. Drivers who average at least 25 hours of engaged time per week will be provided with healthcare stipends equal to 82% of the premium cost for each month.
Other Requirements
Companies will be required to develop anti-discrimination and sexual harassment policies, conduct criminal background checks, and mandate safety training, related to driving, traffic, and accident avoidance, for drivers. Companies will also have zero-tolerance policies for driving while under the influence of drugs or alcohol. Lastly, anyone caught impersonating an app-based driver will be guilty of a misdemeanor and punishable up to six months in county jail and/or a fine of $10,000.
Despite its recent passage, Proposition 22 has already made it into the litigation that various rideshare and delivery service companies are currently embroiled in.
People v. DoorDash, Inc. et al.
Proposition 22’s passage even caught the attention of Superior Court Judge Massullo who called it a “game-changer.” Judge Massullo is currently presiding over the case, People of the State of California vs. DoorDash, Inc. et al. The judge indicated that the pleadings in the case will need to be changed entirely as the government is going to have to create new arguments to support its injunction bid against DoorDash.
Instead of proceeding forward with the preliminary injunction motion, the judge indicated that she would allow the State of California to file an amended complaint. Furthermore, Judge Massullo indicated that she would wait until the votes were certified before moving forward with the parties’ motions on the injunction. Both parties have until December 14th to file supplemental briefing on the impact of Proposition 22 on the state’s preliminary injunction request.
Proposition 22 is scheduled to take effect on the fifth day after California’s Secretary of State certifies the election results. The last date for the election results to be certified is December 11, 2020.
Takeaways
While Proposition 22 was an important victory for app-based rideshare and delivery companies, it does raise an important question about Proposition 22’s impact outside of the gig economy. The language of Proposition 22 is specific in its classification of app-based drivers as independent contractors. The majority of businesses throughout the state are not covered by Proposition 22. This means that most companies will still be held to the “ABC” Test established in AB 5 unless a preexisting exception applies.
Although these recent changes are limited in application to app-based rideshare or delivery service companies, other companies might consider pursuing a similar approach in allowing the voters to decide worker classification. Only time can tell the impact of Proposition 22, however, it appears that it is here to stay as the legislature can only amend the new law if seven-eighths of lawmakers agree to change its provisions.
1 The language of Proposition 22 can be found here.
2 A network company is defined as a business entity that is a delivery network company (DNC) or a transportation network company (TNC) according to Proposition 22. A DNC maintains an online-enabled application or platform used to facilitate delivery services within the state. A TNC maintains an online-enabled application or platform that provides prearranged transportation services with drivers using a personal vehicle.