Consumer Demand = Votes = California’s Prop 22 – The Battle Over Worker Classification Continues

Vinson & Elkins LLP

Vinson & Elkins LLP

The ramifications of the US elections will continue to play out over the coming weeks and months, but the passage of Proposition 22 in California is a clear electoral consequence in the field of employment law. What it appears to show is that when faced with the loss of a valuable consumer service, i.e., ride sharing, consumers turned into voters and altered the battle over when workers are employees, independent contractors, or something in between.

As is so often the case, California is once again at the vanguard of the debate over worker classification.  Since the California Supreme Court’s decision in Dynamex v. Superior Court in 2018 and the subsequent enactment of AB 5, California law has made it challenging for businesses to classify workers as independent contractors rather than employees by applying the restrictive “ABC” classification test.  This has had a significant impact on many businesses, particularly those in the gig economy that relied on being able to engage individuals as contractors with greater flexibility but also fewer rights and entitlements.

The latest battlefront on the issue of worker classification was over Proposition 22, which was approved on Tuesday.  It permits drivers engaged through app-based services to be classified as independent contractors so long as those workers are guaranteed to earn at least 120% of the minimum wage and have flexibility over their engagement, such as determining their days and hours of work, whether to accept or reject individual assignments, and the ability to perform other work, including for competitors.  Additionally, the drivers are entitled to certain additional rights, benefits and expense reimbursements that would not normally be available to true independent contractors.

For affected businesses in California (particularly those that operate ride-hailing apps), this is generally good news, but it means that they will now have to comply with a set of rules that create a new status of worker that is somewhere between an employee and independent contractor.  But for most other businesses, the ABC test remains in effect and great care needs to be taken to ensure that those workers treated as independent contractors are properly classified.

Outside California, the process has already begun with certain businesses and industry groups lobbying state legislatures for similar exemptions that align with their business models, while labor groups push back in an effort to protect and broaden labor protections A lesson of Prop. 22 for these efforts is if gig businesses are able to create strong consumer demand for their services, those consumers will support laws that preserve the ability of those companies to continue to do so.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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