United States:
Passage Of California’s Prop 22 Provides Relief For Ridesharing Companies; Could Ripple To Other State And Federal Law
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Summary
California voters overwhelmingly approved Proposition 22. The
ballot measure exempts 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. At the
same time, Prop 22 establishes a hybrid classification model that
secures pay, certain benefits, and workplace protections for
drivers that traditional independent contractors lack.
The Upshot
- 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
App-based ridesharing companies reportedly spent over $200
million on the ballot campaign to support the passage of Prop 22.
Despite the campaign’s hefty price tag, its success might
inspire the companies to make similar attempts in other states to
pass legislation excluding drivers from the definition of
“employee.” However, federal enforcement actions remain
uncertain. Attorneys in Ballard Spahr’s Labor and Employment Group assist with
employee misclassification concerns and other workplace issues.
FULL ALERT
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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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