Madeline O’Toole, Associate Member, University of Cincinnati Law Review
I. Introduction
In an effort to cut operating costs, many U.S. companies have recently opted to hire workers as temporary or part-time independent contractors and freelancers instead of full-time employees. With the expansion of this gig economy and increase in the number of gig workers, the classification of such workers has been hotly debated and litigated across the nation.[1] Companies such as Uber, DoorDash, Lyft, and other ride-share delivery businesses have largely hired their drivers as independent contractors who are not guaranteed minimum wages, overtime pay, health benefits, or other employment protections.[2]
Recently, Uber, DoorDash, Lyft, and the like have faced legal pressure to classify their workers as employees and afford them state and federal employment protections and benefits.[3] Despite this, California voters decisively approved Proposition 22 which allows app-based ride-share businesses to continue to hire drivers as independent contractors.[4] However, the measure requires these companies to provide their independent contractors employee benefits and protections when certain conditions are met.[5] This article examines the newly enacted Proposition 22 and its effect on current worker classification suits in California.
II. Proposition 22
Proposition 22 was California ballot initiative proposed and adopted in response to a state law passed last year known as Assembly Bill 5 (“AB 5”).[6] AB 5 codified the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles which required that workers be classified as employees unless the employer demonstrated that (A) the worker is free from the control of the hiring entity in the performance of their work both under the contract and in fact, (B) that the worker performs work outside the hiring entity’s usual business, and (C) that the worker is customarily engaged in an independently established occupation that is of the same nature involved in the work performed.[7] While AB 5 provided a number of occupations an exemption from the stringent Dynamex “ABC” test, app-based ride-share drivers were not included among the enumerated exceptions.[8] After the passage of AB 5, ride-share delivery services such as DoorDash have faced legal suits challenging the classification of their drivers as independent contractors under the law.[9]
In the face of these legal challenges, ride-share businesses and other proponents spent over $200 million in support of Proposition 22 which proposed to extend an exemption from the ABC test under AB 5 to rideshare drivers.[10] Ultimately, California voters passed Proposition 22, allowing DoorDash, Uber, Lyft, and other rideshare companies to continue to classify their delivery drivers as independent contractors.[11] Specifically, Proposition 22 allows rideshare companies to classify their delivery drivers as independent contractors if the company does not prescribe specific dates, times, or a minimum number of hours a driver must work, if the company does not require the driver to accept specific delivery requests, and if the company does not prevent the driver from working for another rideshare service or any other lawful business.[12]
Despite Proposition 22 allowing these rideshare businesses to continue to hire their drivers as independent contractors in California, the measure requires that these companies offer certain compensation and benefit guarantees for their drivers. In its statement of purpose, Proposition 22 claims that it is intended to both protect the legal rights of Californians to determine how and when they work and to ensure drivers are afforded certain employment protections and benefits such as minimum wage payments, health care subsidies, automobile accident insurance, and more .[13] The ballot measure fulfilled these promises by enacting labor policies specific to rideshare companies and their drivers.
Proposition 22 provides that California drivers for app-based rideshare companies are entitled to 120% of California’s mandated minimum wage for their engaged time and 30 cents per engaged mile.[14] Engaged time is defined as the time between accepting a service request and completing the request.[15] Further, the measure requires these companies to provide their drivers who average at least 15 hours a week or more of engaged time with a healthcare subsidy consistent with the average contributions required under the Affordable Care? Act.[16] Proposition 22 also requires rideshare companies to provide occupational accident insurance to cover up to $1 million for medical expenses and lost income resulting from any injuries sustained while the driver is online with the company’s app.[17] Finally, rideshare companies must obtain automobile liability insurance to cover up to $1 million to compensate third parties for injuries or losses caused by an app-based driver during his engaged time.[18]
III. Discussion
The passage of Proposition 22 is likely to have significant impact on current cases being litigated over the classification of gig workers in California. In The People of the State of Califonria v. DoorDash, Inc., the San Francisco District Attorney filed suit earlier this year against DoorDash alleging it misclassified its drivers as independent contractors when they are in fact employees.[19] In her complaint, the District Attorney relied on AB 5 as the rule of law under which DoorDash fails to establish that drivers are free from the company’s control, that drivers perform work outside the usual course of DoorDash’s business, and that drivers are engaged in an independently established business.[20] Further, the District Attorney alleged ill will on the part of DoorDash, arguing that the decision to classify its drivers as independent contractors was a conscious decision to reduce the cost of doing business at the expense of its workers.[21]
Had this case been decided prior to the passage of Proposition 22, DoorDash would have likely lost this suit. Given the stringent definition of employee as defined in AB 5, and the fact that app-based rideshare drivers were not exempted from the definition, it is likely the court would have held DoorDash drivers are employees. While DoorDash may have made a case for the first prong, that drivers are able to accept or reject order requests, the second and third prongs of the ABC test are much more difficult to pass. DoorDash drivers do not perform work outside the usual course of DoorDash’s business, as DoorDash is a delivery service, and delivery drivers are central to the business.[22] Additionally, DoorDash drivers are normally not engaged in an independent trade, as they are typically not professional delivery drivers who operate their own delivery companies.[23]
With the passage of Proposition 22, however, DoorDash will likely emerge victorious in this suit. Proposition 22 directly exempts such app-based rideshare delivery drivers from the restrictive definition of employees. As a result, the court will likely hold that DoorDash did not misclassify its drivers as independent contractors even if the company originally did prior to the passage of Proposition 22. Nonetheless, if DoorDash’s objective, as the District Attorney alleged, was to reduce costs at the expense of its workers, the company will fall short. While Proposition 22 gives the DoorDash the preferential classification of independent contractors for its drivers, the company will now have pay for its drivers additional benefits and protections that are normally only afforded to employees.
IV. Conclusion
As rideshare delivery services continue to expand and redefine the gig economy it seems more likely that other states will adopt their own Proposition 22s. While Proposition 22 still permits DoorDash, Uber, Lyft, and other companies like them to retain and continue to hire drivers as independent contractors, it is clear that these drivers do not actually fit the typical definition of independent contractors. With the new benefits and protections being afforded to rideshare drivers under Proposition 22, these drivers appear as hybrids, possessing qualities of both independent contractors and employees. The strict definitions reserved for employees and independent contractors respectively are not encompassing of the new considerations and technology used to hire and employ this new type of gig worker. While most will continue to consider such workers independent contractors, it is apparent that a new class of workers is forming in U.S.—one that demands the best of both worlds.
[1] Greg Iacurci, The gig economy has ballooned by 6 million people since 2010. Financial worries may follow, CNBC (Feb. 4, 2020) https://www.cnbc.com/2020/02/04/gig-economy-grows-15percent-over-past-decade-adp-report.html.
[2] Who’s an Employee in California? Worker Classification Explained, Bloomberg Law (Jan. 31, 2020) https://www.bloomberglaw.com/document/X9LSC6R4000000?bna_news_filter=daily-labor-report&jcsearch=BNA%25200000016fcdeedd13a1ffdfee7f1a0001#jcite.
[3] Johana Bhuiyan, Suhauna Hussain, Prop. 22 passed, a major win for Uber, Lyft, DoorDash. What happens next? Los Angeles Times (Nov. 4, 2020) https://www.latimes.com/business/technology/story/2020-11-04/prop-22-passed-what-happens-next.
[4] Adam Y. Siegel, Benjamin A. Tulis, Proposition 22 – What Does It Mean for the Gig Economy in California? National Law Review (Nov. 6, 2020) https://www.natlawreview.com/article/proposition-22-passed-what-does-it-mean-gig-economy-california.
[5] Id.
[6] Id.
[7] Cal Lab Code § 2750.3(a)(1)(A)-(C).
[8] Proposition 22 – What Does It Mean for the Gig Economy in California? https://www.natlawreview.com/article/proposition-22-passed-what-does-it-mean-gig-economy-california.
[9] Alaina Lancaster, SF DA Requests Court Order to Make DoorDash Couriers Employees, Law.com (Aug. 13, 2020) https://www.law.com/therecorder/2020/08/13/sf-da-requests-court-order-to-make-doordash-couriers-employees/?slreturn=20201011225043.
[10] What were the most expensive ballot measures in California? Ballotpedia https://ballotpedia.org/What_were_the_most_expensive_ballot_measures_in_California.
[11] Id.
[12] Cal. Bus. & Prof. Code § 7451(a)-(d) (Deering 2020).
[13] Cal. Bus. & Prof. Code § 7450(a)-(c) (Deering 2020).
[14] California Proposition 22, App-Based Drivers as Contractors and Labor Policies Initiative (2020), Ballotpedia https://ballotpedia.org/California_Proposition_22,_App-Based_Drivers_as_Contractors_and_Labor_Policies_Initiative_(2020).
[15] Id.
[16] Id.
[17] Id.
[18] Id.
[19] SF DA Requests Court Order to Make DoorDash Couriers Employees https://www.law.com/therecorder/2020/08/13/sf-da-requests-court-order-to-make-doordash-couriers-employees/?slreturn=20201011225043.
[20] Id.
[21] Id.
[22] Complaint For Injunctive Relief, Civil Penalties, Requisition and Other Equitable Relief, No. CGC-20-584789 (Cal. App. Dep’t Super. Ct. June 6, 2020).
[23] Id. at 13:69-70.
