Drivers Can Now Be Classified As Contractors By Uber And Lyft Following A California Court Victory

The California Court of Appeal ruled on Monday that ride-sharing apps, including Uber and Lyft, should be able to continue to treat their drivers as independent contractors, overturning a ruling in a lower court that prohibited them from doing so.

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Californians voted in favor of Proposition 22 in November 2020, which allowed ride-sharing and delivery apps to classify their drivers as independent contractors. A California judge ruled the proposition to be unconstitutional in 2021, claiming that it infringed the legislature's right to set workplace standards and that the legislature should be given more power to do so. It was up to the state and a group that represented the companies and other parties to appeal that decision, and Monday's ruling sided with them.

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Uber, Lyft, and Doordash all rose more than 4% after hours on the news, with shares of the ridesharing and delivery companies up more than 4% after hours.

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A set of criteria was established under Prop. 22 to determine whether rideshare drivers should be considered employees or independent contractors. In practice, it exempted Uber and similar ridesharing companies from following certain minimum wage, overtime, and workers' compensation laws for hundreds of thousands of Californians who drive rideshares. This ballot measure required companies to provide compensation and healthcare "subsidies" based on the amount of time drivers spend engaged in driving as well as other benefits such as safety training and anti-sexual harassment training, as well as other benefits as well.

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There was no doubt that the "Yes" campaign was the costliest ballot issue in California's history, with ride-share companies contributing over $181 million to the "Yes" campaign alone. The companies were reported to have taken aggressive steps to encourage their drivers to vote in favor of the initiative, which passed with 58.6% of the vote.

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In a lower court decision, a group of ride-share drivers won a case seeking to overturn Proposition 22. California's 1st District Court of Appeal disagreed with the ruling of the California Supreme Court, which upheld the proposition in a 63-page opinion issued on Monday.

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“Proposition 22 is not an intrusion on the Legislative's authority in workers' compensation or a violation of the single-subject rule,” according to the opinion.

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"Today's ruling is a victory for app-based workers as well as millions of Californians who voted in favor of Proposition 22. There has been widespread agreement among Uber's drivers and couriers throughout the state that Prop 22 has benefited them by allowing them to take advantage of new benefits while preserving their unique flexibility that is exclusive to app-based work," Uber chief legal officer Tony West said in the statement.

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