Uber and Lyft score victory as California court asserts right to treat drivers as contractors

Proposition 22, passed in November 2020, allowed these companies to continue to treat their workforce as independent contractors. It was declared unconstitutional by a California court in 2021. Monday’s order reversed parts of the lower court’s ruling.

Uber and others are locked in a global grapple with regulators over whether and how to give more benefits such as paid sick leave and health insurance to workers in the so-called gig economy, in which apps distribute individual tasks to a group of people whose companies are generally considered independent contractors.

California sued Uber and Lyft in 2020, saying they were violating a new state law that sought to reclassify their drivers as employees. A legal battle ensued, culminating in Proposition 22, involving Uber, Lyft and DoorDash a company.

and Instacart Inc. She asked the state’s voters to be exempt from the law. Companies spent a record amount of money to conduct balloting in California, about $200 million.

The companies promised workers flexibility along with some benefits if the ballot measure passed.

In television, print, and radio ads at the time, companies told voters that reclassification would eliminate workers’ flexibility and dramatically increase transportation and delivery rates for consumers.

A group of shared auto drivers and labor unions has challenged the constitutionality of Proposition 22. In August 2021, a California judge ruled that it was unconstitutional because it limits the power of the state legislature and its ability to pass future legislation. The companies appealed that decision, which led to Monday’s ruling in the California Court of Appeals for First Instance.

“Today’s ruling is an historic victory for the nearly 1.4 million drivers who rely on the independence and flexibility of app-based work to earn income, and for the integrity of the California initiative system,” said the corporate Prop 22 campaign.

Uber and Lyft shares were up 5% in after-hours trading after the ruling. DoorDash shares jumped 4%.

While the court preserved independent contractor forms for businesses, it struck down a provision that made it more difficult for workers to unionize. The ballot procedure required a seven-eighths majority of the California legislature to amend workers’ collective bargaining rights, which critics said was difficult to meet. The court severed this requirement from the remainder of the lawsuit.

“The right to unionize together is the most powerful way for workers to challenge the exploitative business model of gig companies that profit from paying low wages and silencing their workers,” said Teresa Rutherford, a board member of Service Employees International, a labor union that has challenged the constitutionality of Proposition 22 alongside Along with many drivers, today’s decision opens the door to that possibility.

The group is considering appealing Monday’s ruling to the California Supreme Court.

Proposition 22 set the course for organizing temporary workers in the rest of the country. Washington state passed a law last year to preserve independent contractor forms for businesses. The two companies also joined forces to make a Proposition 22-like ballot in Massachusetts, but the state Supreme Court blocked it in June.

Efforts to win public support in California led corporations to secure new protections.

Under Proposition 22, companies offer health insurance to drivers who work 15 hours or more per week, occupational accident insurance coverage and 30 cents per drive mile, among other protections. Critics say the benefits are less than those given to full-time employees.

Uber, which has a larger global footprint, was forced to make greater concessions outside the US, agreeing to give its UK drivers job status that entitles them to holiday pay and pension contributions after exhausting its legal options in 2021.

Write to Preetika Rana at [email protected]