Prop 22: App-based drivers are classified as contractors

After the most expensive ballot measure campaign in state history, California voters overwhelmingly passed Proposition 22 in November, which classifies app-based drivers as independent contractors, rather than employees, and adopts labor and wage policies specific to app-based drivers.

In Dynamex Operations West, Inc. v. Superior Court, 4 Cal. 5th 903 (2018), the California Supreme Court adopted strict standards restricting the workers who may be classified as independent contractors, as opposed to employees. In a 2019 law known as Assembly Bill 5, the California Legislature codified the Dynamex standards and expanded their application to most industries statewide. Under AB 5, courts held that app-based drivers, such as drivers for ride sharing and food delivery services, could not be classified as independent contractors. See People v. Uber Techs., Inc., 56 Cal. App. 5th 266 (2020).

Dynamex and AB 5 had significant consequences for many employers, because California employment law provides greater rights and protections for employees than for independent contractors. For example, employees are subject to the minimum wage, can earn overtime, and are sometimes eligible for workers' compensation and unemployment benefits if they are injured or lose their job, while independent contractors generally lack these protections. Employers must also withhold taxes from an employee's wages and pay social security, Medicare and unemployment taxes for their employees, but not any independent contractors they retain.

Dynamex and AB 5 also created unique challenges for app-based drivers and other "gig" workers who preferred the control that independent contractors have over their work activities. Employees are subject to control by their employer, which may include, for example, mandatory shifts and minimum weekly hours quotas, whereas independent contractors control the timing, frequency, and duration of their work hours.

Proposition 22 altered the regime created by Dynamex and AB 5 in two key respects. First, Prop. 22 categorically classifies app-based drivers as independent contractors for purposes of California employment and labor law, effectively overturning Dynamex and AB 5 as applied to app-based drivers.

Second, Prop. 22 adopted a unique series of labor and wage policies specific to app-based drivers. Among other things, Prop. 22: (i) created an earnings floor for drivers based on engaged time and vehicle expenses; (ii) prohibits drivers from working more than 12 hours in any 24-hour period without taking at least 6-hour break; (iii) requires companies to provide drivers with monthly healthcare subsidiaries scaled to engaged time; and (iv) requires companies to provide or make available certain insurance benefits, including occupational accident insurance covering medical and disability benefits, and accidental death insurance for the benefit of the driver's family.

Proposition 22 is a significant victory for ride sharing companies and other companies that utilize app-based drivers, which will no longer be required to classify their drivers as employees for purposes of California labor and employment law. However, Prop. 22's long-term impact may extend beyond app-based drivers and the companies that engage them. Prop. 22's success may encourage employers in other industries to push for legislation exempting their employees from general broad-based labor laws in favor of an industry-specific labor regime. Former U.S. Secretary of Transportation Anthony Foxx, now the chief policy officer for a major ride sharing company, recently predicted that Prop. 22 would create a model that could be scaled nationwide.