California Court Rules Ride-Hailing Firms Including Uber, Lyft Can Treat Drivers as Contractors

An Uber office in Redondo Beach, Calif., on March 16, 2022. Mike Blake/Reuters

A California appeals court ruled on March 13 that app-based companies like Uber, Lyft, and DoorDash can continue to treat their workers in the state as independent contractors rather than employees.

The ruling by a three-judge panel of the San Francisco-based court centers around a November 2020 voter-approved law, known as the Protect App-Based Drivers and Services Act, or “Proposition 22,” which allowed ride-hailing and delivery app makers to exclude workers from a state labor law that would provide various protections and benefits.

A lower court had previously ruled in 2021 that Proposition 22 was illegal, arguing that it infringed on the Legislature’s power to set standards at the workplace and was therefore “unenforceable.”

However, multiple app-based companies appealed that decision, and Monday’s ruling by the First District Court of Appeal subsequently overturned it.

“We agree that Proposition 22 does not intrude on the Legislature’s workers’ compensation authority or violate the single-subject rule, but we conclude that the initiative’s definition of what constitutes an amendment violates the separation of powers principles,” the panel wrote in their 132-page decision (pdf) on Monday.

Proposition 22 Explained

Proposition 22 was approved by nearly 60 percent of voters in California in 2020.

It made it onto the ballot that year after the state sued Uber and Lyft in that same year, saying they were in violation of AB-5, the state’s new law that sought to reclassify drivers as employees.

Uber, Lyft, and DoorDash then asked voters to exempt them from the law via Proposition 22, meaning that they could classify drivers as independent contractors as long as they are paid a minimum wage while transporting passengers, receive expense reimbursements and health care subsidies based on their “engaged driving time,” as well as vehicle insurance and safety training, among others.

The four companies, which reportedly spent over $200 million campaigning for the measure, argued that independent surveys showed that the majority of their workers overwhelmingly preferred to work as independent contractors, not employees, citing their need for flexibility, among other reasons.

However, the Service Employees International Union (SEIU) and a group of ride-share drivers in 2021 challenged the legality of Proposition 22, arguing that it stripped California gig workers of basic rights including overtime pay, paid family leave, sick days, and unemployment insurance.

They sought to have it declared invalid by a lower court, which it eventually was, although Monday’s ruling overturned that ruling.

‘A Victory for App-Based Workers’

It is likely that Monday’s decision will be appealed in the California Supreme Court, the state’s top court.

Shares across Uber, Lyft, and DoorDash jumped in after-hours trading following the court decision.

“Today’s ruling is a victory for app-based workers and the millions of Californians who voted for Prop 22,” said Tony West, Uber’s chief legal officer, in a statement to the Verge. “Across the state, drivers and couriers have said they are happy with Prop 22, which affords them new benefits while preserving the unique flexibility of app-based work. We’re pleased that the Court respected the will of the people, and that Prop 22 will remain in place, preserving independence for drivers.”

In a separate statement, David Huerta, president of SEIU California and SEIU United Service Workers West said: “Gig companies should know by now that drivers aren’t going to give up until they have the rights afforded to all other workers in the state, from basic protections on the job like workers compensation and unemployment insurance, paid sick leave to having a seat at the table to bargain for better wages and benefits.”

“Corporations prioritizing their bottom lines over our democracy should not dictate the laws in our state. SEIU will continue to stand alongside drivers in the fight to prevent democracy from being sold to the highest spender,” Huerta added.

While Monday’s ruling marked a win for ride-sharing and delivery app makers, it did not signify a complete defeat for labor unions and workers as the court ruled that a section of Proposition 22 that prevented gig workers from joining a labor union and collectively bargaining for better working conditions was invalid.