?Ride-hailing and delivery companies can continue to treat their California drivers as independent contractors, a state appeals court ruled on March 13. The court mostly upheld the state’s Proposition 22, which said ride-hailing businesses could legally classify their drivers as independent contractors rather than employees.
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Collective Bargaining Allowed
The court ruling is a defeat for labor unions that opposed Proposition 22. However, the court ruled that the companies could not stop their drivers from joining a labor union and collectively bargaining for better working conditions. The Service Employees International Union can appeal the latest decision to the California Supreme Court, which may decide to hear the case.
One Clause Removed
Opponents of Proposition 22 argued that the ballot measure was unconstitutional under several grounds:
- It set limits on the state legislature’s ability to oversee workers’ compensation for gig drivers.
- It included a rule restricting workers from collective bargaining that critics said was unrelated to the rest of the measure.
- It set a seven-eighths majority vote of the legislature as the bar for passing amendments to the measure related to collective bargaining, a requirement that was considered nearly impossible to achieve.
The appeals court disagreed on two of the three points, but it agreed that requiring collective bargaining to occur through an amendment to the proposition “violates separation of powers principles” and therefore ordered that clause to be severed from the rest of the ballot measure.
No Hourly Wage
Ride-hailing companies typically pay their drivers for booked time, not an hourly wage, but that would change if the drivers became employees. Booked time does not include the time drivers spend waiting for a ride request. Lyft and Uber have suggested that they might withdraw operations in California if the law did not allow them to classify drivers as independent contractors.
In response to the court decision, shares in Uber, Lyft and DoorDash rose in after-hours trading.
Recent Settlement
Uber paid $8.4 million to settle a class-action lawsuit with California drivers who claimed they were misclassified as independent contractors rather than as employees. The U.S. District Court in the Northern District of California approved that settlement on July 21, 2022.
Some drivers participating in ride-hailing services want to be employees, while others prefer to remain independent contractors because of the autonomy and flexibility in hours. Independent contractors typically have more flexibility than employees, while employees have more benefits and legal protections.
‘ABC Test’
California’s “ABC test” is used to determine whether a worker is an employee or an independent contractor for purposes of California wage laws.
Under the ABC test, a worker is considered an employee unless the employer establishes that:
- The worker is free from the employer’s control and direction in connection with the performance of the work.
- The worker performs work that is outside the usual course of the employer’s business.
- The worker is customarily engaged in an independently established trade, occupation or business.
