California Passes Proposition 22—Major Victory for Lyft, Uber and DoorDash
On November 3, California voters approved Proposition 22 to allow certain technology companies like Lyft, Uber, and DoorDash to classify their app-based drivers as independent contractors, despite the state’s recent legislation requiring businesses to treat most independent contractors as employees. See our previous article for a summary of California’s landmark AB 5.
While the passage of Prop 22 has been viewed as a victory for these technology companies, who lobbied extensively for its passage, it does guarantee certain protections for drivers, including minimum earnings, vehicle insurance, healthcare subsidies, and other benefits.
Drivers Covered Under Prop 22
Prop 22, also known as the “App-Based Drivers as Contractors and Labor Policies Initiative” was approved by 58% of California voters. The initiative applies to app-based drivers who meet the following criteria:
Use their personal vehicles to provide pre-arranged transportation services through a business’s app or web platform in return for compensation
Provide on-demand delivery services through an online-enabled app or platform
However, just being designated an app-based driver is not enough to qualify for independent contractor status under Prop 22. Technology companies that utilize app-based drivers, referred to as “network companies” under Prop 22, cannot do the following:
Require a driver to log on to the app or platform for a minimum number of hours or stay logged on during specific dates and times
Require a driver to accept any specific rideshare or delivery request as a condition of accessing the app or platform
Restrict the driver from providing rideshare or delivery services for other companies when the driver is not working for the networking company
Prevent the driver from working another lawful business or occupation
Prop 22 Requires Certain Benefits for App-Based Drivers
Prop 22 does provide some benefits for app-based drivers not usually available to independent contractors under California law, including:
A minimum earnings guarantee of 120% of California’s minimum wage.
Compensation for vehicle expenses.
At least $1 million in occupational accident insurance for injuries sustained on the job.
Disability payments of 66% of the driver’s average weekly earnings for at least 104 weeks under the occupational accident insurance policy.
A health care subsidy for drivers working at least 15 hours per week.
Prohibiting drivers from working for more than 12 hours during a 24-hour period for a single company unless the driver has logged off for 6 hours.
Protections against discrimination and sexual harassment.
Safety training for drivers.
Under Prop 22, the networking company must require criminal background checks for drivers and adopt zero-tolerance policies for driving under the influence of alcohol or drugs.
When Does Prop 22 Take Effect?
Prop 22 will take effect on the fifth day after the California Secretary of State certifies the results of the election, which is expected to occur on December 12. If so, then Prop 22 will take effect on December 17.
What’s Next for Employers?
Employers not qualifying as “network companies” employing California app-based drivers must still comply with the ABC Test under AB 5 and the Borello Test for determining how to categorize their workers. See our previous article for a summary of these tests.
Network companies employing app-based drivers should assess how their business can comply with the requirements of Prop 22 if they wish to take advantage of it. Doing so will likely require reviewing current payroll practices, assessing app features to ensure it does not violate any of the prohibited practices such as requiring driving hours or preventing drivers from working for other companies, assessing current health and disability insurance and reviewing existing contractor agreements to bolster compliance with Prop 22.
Regardless, all employers, whether network or non-network, employing workers in California should do the following:
Assess whether worker classifications meet the ABC Test under AB 5 and the Borello Test, and whether any exceptions apply to avoid employee classification;
Analyze existing employment and contractor agreements, as well as employment practices, to ensure proper classification of workers;
Negotiate mandatory arbitration and class action waiver language in employment and contractor agreements (noting that waivers of claims under California’s Private Attorney General Act (PAGA) are unenforceable under state law).
Understand liabilities associated with misclassification of workers, including consequences for violating wage and hour laws, overtime, meals and rest periods and penalties associated with failure to withhold state and federal employment taxes.
DISCLAIMER: The subject matter discussed above is constantly evolving and may change on a frequent basis. The information contained in this post is for general education and informational purposes only. It should not be construed as legal advice or as creating an attorney-client relationship between the reader and TKN Law.