Calif. Voters Back Uber, Lyft's Worker Classification

Law360 (November 4, 2020, 3:03 AM EST) -- California voters have approved a business-backed measure to exempt Uber and other app-based ride-hailing and delivery companies from the state's revised worker classification test, handing the gig economy companies a pivotal win in a high-stakes fight over the future of work.

The vote in favor of Proposition 22 carves gig economy companies out of the landmark 2019 law known as A.B. 5 and extends their workers some basic job protections, including pay minimums and health insurance stipends. A.B. 5 made it harder for many California businesses to classify their workers as independent contractors, who lack most legal protections afforded workers classified as employees.

A coalition comprising ride-hailing companies Uber Technologies Inc. and Lyft Inc. and delivery services DoorDash Inc., Instacart and Postmates Inc. spent more than $200 million on the campaign, and its success will let them maintain business models built on classifying their workers as contractors. The measure will go into effect five days after the California secretary of state certifies the election results.

Continuing to treat their workers as contractors will benefit the companies in "a number of ways," said Thomas Lenz, an attorney with California law firm Atkinson Andelson Loya Ruud & Romo who advises businesses on employment law.

"They're not going to have to worry about the typical employer compliance issues with wage-and-hour law, with employee benefits, workers' compensation," Lenz said. "They would not have to worry about independent contractors organizing a labor union or engaging in concerted activity to protest working conditions with the same protections and force they would have under typical labor laws."

California lawmakers passed A.B. 5 last year following protracted debate over how to update the state's worker classification test, which has sparked legal clashes between businesses and workers who say they have been unfairly denied minimum and overtime wages, unemployment, and other job protections.

The law codified a 2018 California Supreme Court decision known as Dynamex , which imposed the so-called ABC Test in most worker classification disputes. Under this test, employers must prove each of three things to classify their workers as independent contractors, including that the workers perform work outside the company's regular business. In August, a California state judge said Uber and Lyft failed this prong because their business is providing rides and ordered they treat drivers as employees. The Court of Appeal for the First Appellate District denied the companies' bid to lift the injunction last month. 

A.B. 5 directs courts to use the ABC Test in most cases, but it applies to certain exempted industries an existing test that turns on how much control businesses have over alleged employees.

Though the statute applies to most employment relationships, it's commonly referred to as the gig economy law because this segment relies most heavily on independent contractors. These businesses have fought the law, first lobbying the Legislature for exemptions during debate and challenging the law in the courts and on the ballot following its passage.

While Prop 22 denies gig workers the full scope of employment rights and protections, it provides them certain benefits and safeguards that other contractors don't have. For example, the measure sets an earnings floor of 120% of the minimum wage for time workers spend serving customers, provides subsidies for purchasing insurance through the state's health care marketplace, and requires businesses to insure workers for on-the-job injuries.

These rights are better than nothing, but they're "far short of the basic protections that regular employee status confers," said Brian Chen, a National Employment Law Project attorney who advocates for worker classification reform.

"Paid sick time, minimum wage, overtime, workers' compensation, state disability — these are very basic protections that Prop 22 fails to meet, even as it does provide a few meager benefits," Chen said.

Workers' advocates have been pushing legislators in New York and other progressive-led states to adopt the ABC Test. It's likely the gig economy companies take a page out of their California playbook to oppose those efforts, Chen added.

"This really is foreshadowing," he said.

--Editing by Orlando Lorenzo.

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