Proposition 22 passed with nearly 60% of the vote Tuesday, after a fierce battle over the status of gig economy workers like Uber, Lyft, and DoorDash drivers. Proposition 22 exempts these workers from Assembly Bill 5, California’s 2019 law that adopted the “ABC test” for worker classification. Under the ABC test, a business/hiring entity must show three things to classify their workers as independent contractors:
- the worker is free from the control and direction of the hiring entity;
- the worker performs work that is outside the usual course of the hiring entity’s business; and
- the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
Which Gig Workers Does Proposition 22 Apply To?
Proposition 22 only applies to “app-based transportation drivers (rideshare) and delivery drivers.” This includes drivers for companies like Uber, Lyft, DoorDash, Postmates, Instacart, and Grubhub. Companies wishing to take advantage of Proposition 22 must meet several conditions regarding the relationship between it and its drivers, such as not restricting the driver from working elsewhere, and allowing drivers to pick and choose service requests from app users. While Proposition 22’s industry reach is narrow, other businesses that employ gig workers would do well to take notice. The ballot initiative’s success may spur copycat initiatives by other types of businesses, so they can exempt their gig economy workers from the ABC test as well. Alternatively, gig workers in other sectors who wish to remain independent contractors may fight for a similar hybrid model.
How Does Proposition 22 Affect These Drivers?
The drivers remain independent contractors. Sticking with the status quo, they still are not entitled to the protections guaranteed to California employees such as paid sick leave, paid family leave, paid rest breaks, or unemployment compensation. However, the drivers are now entitled to certain limited benefits and protections, as follows.
Minimum Earnings Floor. A driver’s earnings cannot fall below 120% of the minimum wage for the time during which the driver is “engaged,” plus 30 cents per engaged mile. “Engaged time” does not include the time a driver spends while active on the app, waiting to be summoned. “Engaged time” starts when a driver accepts a rideshare or delivery request, and ends when the driver completes the ride or delivery. If the driver’s earnings fall below 120% of the minimum wage for engaged time plus 30 cents per engaged mile, the company must make up the difference. Companies are not permitted to use driver gratuities to satisfy this obligation. The mileage portion of the earnings floor is adjusted annually based on inflation.
Healthcare Subsidy. Companies must provide a quarterly healthcare subsidy to qualified drivers. Drivers who average at least 15 hours of “engaged time” per week will receive a payment that covers at least 50% of the Affordable Care Act (ACA) contribution for the average monthly Covered California premium. Drivers who average at least 25 hours per week of “engaged time” will receive 100% of the ACA contribution for the applicable average monthly Covered California premium, for each month in the quarter.
Medical Expenses and Lost Income Due to On-the-Job Injury. Companies must carry occupational accident insurance to cover medical expenses and lost income resulting from injuries suffered while the driver is active on the app. Note that the coverage applies to both “engaged time” and non-engaged time – such as when the driver is awaiting a ride request. The coverage must include:
- medical expenses incurred, up to at least one million dollars;
- disability payments equal to sixty-six percent (66%) of the app-based driver’s average weekly earnings as of the date of injury; and
- burial expenses and death benefits for spouses, children, and other dependents.
Anti-Discrimination and Right to Sue. Companies must not refuse to contract with, or terminate the contract of a driver, based on any of the following categories: race, color, ancestry, national origin, religion, creed, age, physical or mental disability, sex, gender, sexual orientation, gender identity or expression, medical condition, genetic information, marital status, or military or veteran status. Drivers may bring a lawsuit against a company for alleged discrimination or harassment on the basis of a protected class, but only under the Unruh Civil Rights Act, codified at California Civil Code section 51. Unlike California employees, the drivers may not sue under the Fair Employment and Housing Act (FEHA). One key difference between the two is that the Unruh Civil Rights Act has a shorter statute of limitations – one year only. Under the FEHA, an employee has three years from the alleged discrimination to file a charge with the Department of Fair Employment and Housing and/or seek a right-to-sue letter. Employees then have one more year after receiving a right-to-sue letter to file a lawsuit under the FEHA. By contrast, under the Unruh Civil Rights Act, the drivers do not need a right to sue letter at all, but they must file a lawsuit within one year of the alleged discrimination.
Sexual Harassment Prevention. Proposition 22 also provides some protections for drivers against sexual harassment. Companies must develop an anti-harassment policy, provide an opportunity for drivers to submit complaints electronically, and conduct a “fair, timely, and thorough investigation” of complaints. Companies may not retaliate against drivers for raising complaints of harassment. This is consistent with California employer obligations with respect to sexual harassment prevention.
App-Based Driver Rest. Companies may not allow an app-based driver to be logged in and driving for more than a cumulative total of 12 hours in any 24-hour period, unless the driver has logged off for an uninterrupted period of six hours.
What About Consumer Protections?
In addition to the driver protections above, Proposition 22 also contains consumer protections, such as mandatory criminal background checks, safety training, and maintenance of a “zero tolerance” drug and alcohol policy.
Opponents of Proposition 22 contend that the gig businesses leveraged their financial might to buy an exemption. The “Yes on 22” campaign spent more than $200 million dollars – making it the most-expensive ballot campaign ever in California. Still, voters may see similar provisions on future ballots. Proposition 22’s target, Assembly Bill 5, has been controversial since its passage. The legislature has already amended numerous times, adding exemptions for freelance writers, photographers, and others. Now that app-based drivers are exempt from Assembly Bill 5, other businesses and workers may seek carve-outs as well.
Reaping the benefits of Proposition 22 requires close attention to its details. And, failing to classify employees and independent contractors correctly can expose companies to litigation, Labor Commissioner penalties, and more. Attorneys at Duggan McHugh Law Corporation are here to help you navigate these issues and any other employment challenges facing your business.