Proposition 22 passage upended state’s labor landscape

By creating an unprecedented model for independent contractor status, the passage of Proposition 22 on Tuesday night has upended the labor landscape in California -- and potentially other states.

Labor and employment attorneys who have been watching the issue say a number of questions now loom large: Will gig companies outside the rideshare industry push for similar exemptions to California's labor laws? Will the new independent contractor model be adopted by other states? And will opponents of Assembly Bill 5, who have sought to amend or repeal it in recent months, now be better able to mount their challenges?

Proposition 22 proposed a novel labor model for California drivers who work for app-based companies: Drivers will be classified as independent contractors, but will also be entitled to some benefits -- like health care stipends and a wage floor that is at least 120% of the state minimum wage -- if they work a certain number of engaged hours, which covers the time between a driver accepting a ride request and completing that ride.

The Uber, Lyft, and DoorDash-funded ballot measure has been widely characterized as a move to establish a third category of employment -- one that straddles the line between an independent contractor and an employee. But some attorneys propose another way to frame Proposition 22's achievement: a move that raises the floor for independent contractor rights.

"I actually disagree this is creating a third category," Travis Gemoets, who represents management as a partner at Jeffer Mangels Butler & Mitchell LLP, said of Proposition 22. "You're basically saying they're going to be 'independent contractors plus.' [They] become independent contractors, but with these certain additional benefits."

"I think what this will do is be kind of a guideline for other states ... where we can create this hybrid," Gemoets added.

Shannon Liss-Riordan, a partner at Lichten & Liss-Riordan PC known for the misclassification cases she has filed against Uber, said she has no doubt the companies that backed Proposition 22 will try to push similar initiatives for the ride-share industry in other states. But she disagreed this would be a positive move.

"I really hope that lawmakers and the public across the country see that for what it is, which was a power grab by extremely wealthy corporations to change the rules to fit their own convenience, to help their own, to protect their own pocket books." Referring to reports in some news media that Uber, Lyft, and DoorDash spent $205 million to pass the ballot measure, making Proposition 22 the most expensive measure in California history, Liss-Riordan said, "This was a taking away of basic rights that have been fought for in the course of decades."

But the ballot measure's impact won't be limited to rideshare drivers, Gemoets said. Other gig industries may try to seek a similar exemption from state labor laws based on an equal protection argument, especially if their business model also revolves around an app. "It will be an interesting thing to see how other app-based companies that aren't strictly about app-based drivers ... claim they should be covered by Proposition 22 as well," he said.

Tao Leung, management-side counsel at Hogan Lovells, expects Tuesday's election results to also bolster efforts to repeal Assembly Bill 5, the law that Proposition 22 specifically sought to exempt the rideshare industry from. Under Assembly Bill 5, workers are automatically classified as employees unless they can pass a three-pronged "ABC" test. Several state courts have held Uber and Lyft drivers are employees under the law.

"What's very interesting is ... whether or not there will be pressure to essentially get rid of AB 5 altogether," Leung said. "It's pretty well understood that AB 5 was done to essentially target the companies that are subject to Proposition 22. So now that that incentive is no longer there ... then really the companies that suffer the most are all the other companies that utilize independent contractors, which won't necessarily have the resources to get something on the ballot to exempt them."

The past year has seen proposed legislation to either carve out industry-specific exemptions to Assembly Bill 5, or to repeal and replace the law altogether. Leung said the success of Proposition 22 could encourage more efforts along these lines, some of which could be modeled on the ballot initiative.

Like Gemoets, Leung also framed app-based drivers' new status in California as "independent contractor plus."

All three attorneys anticipate Proposition 22 will be challenged. A preliminary injunction that a Court of Appeal upheld against Uber and Lyft in October, which requires the companies to comply with Assembly Bill 5, will be moot given their new exemption from the law, Gemoets and Liss-Riordan said. A spokesperson for Attorney General Xavier Becerra had no comment on the ballot measure Wednesday. People v. Uber, A160706 (Cal. App. 1st Dist., filed Aug. 17, 2020).

Gemoets said while litigation against Proposition 22 is likely, "It's really hard to challenge a proposition voted on by the voters." In this specific instance, he added, "I don't see challenges to the proposition being successful. ... I don't think there's anything in this proposition that is so fundamentally contrary to the California Constitution that it would be subject to challenge."

"I hope it's a wake-up call for anyone that cares about the future of work anywhere in this country," Liss-Riordan said. "You could portend an even bigger fight -- I've been talking for a long time about how the workplace protections that have been enacted in California need to be made national, and we need to amend our federal laws to protect our workers from misclassification."

The presidential election, she added, is "pivotal to how that question gets answered in the coming years."