November 4, 2020
California Voters Vote to Pass Proposition 22 Which Excludes Rideshare Companies from AB-5.
The votes have been tallied and California voters have approved Proposition 22 which allows rideshare companies to classify their drivers as independent contracts as opposed to employees. Rideshare companies such as Lift, Uber, DoorDash, and other proponents of the measure joined forces and poured close to $200 million into pre-election ads to secure a favorable outcome. With the passage of the ballot initiative, rideshare companies should be able to continue to do business under their current business model rather than having to reclassify their drivers as employees. Had Proposition 22 failed, it is likely that rideshare companies would have had to spend millions to provide drivers with benefits typical of an employer-employee relationship, such as minimum wage, overtime, paid sick leave, and unemployment insurance.
Passage of Proposition 22 also means that rideshare companies should be exempt from AB-5, the California law which was enacted to classify freelance drivers and other workers as employees. AB-5 codified the ruling of the California Supreme Court in Dynamex Operations West v. Superior Court of Los Angeles (2018) 4 Cal. 5th 903. In Dynamex, the Court held that workers are presumptively employees and subject to California’s wage orders unless the hiring entity can establish the opposite under a highly restrictive three-part multifactor test defined by the Court as the ABC test. Insofar as it would have been difficult if not impossible for rideshare companies to prove that their drivers were engaged in an independently established trade or occupation from the company itself – part C of the test – AB-5 and Dynamex meant that rideshare companies would undoubtedly be subject to liability under California’s wage orders for having misclassified their drivers as independent contractors.
It is unclear whether Proposition 22 will be given retroactive effect so as to protect rideshare companies from pending lawsuits alleging violation of AB-5 and Dynamex. And although Proposition 22 exempts rideshare companies from AB-5, it is unclear for the moment whether it will protect such companies from lawsuits alleging misclassification under other common law tests for determining whether a worker is an employee versus an independent contractor. Hence, it is possible that rideshare companies could still find themselves in court battling allegations of having improperly classified their drivers as independent contractors.
Contact our Employment Team if you have questions about these developments or if faced with the threat of litigation alleging employee-misclassification.