[co-author: Leah Shepherd]

On July 25, 2024, the Supreme Court of California upheld a state law permitting ride-sharing apps to continue classifying their drivers as independent contractors, rather than employees. The ruling is likely to have a significant impact on the gig economy in the state, preserving the ability of applicable rideshare and delivery network companies to classify their drivers as independent contractors.

Quick Hits

• A recent opinion from the Supreme Court of California permits app-based platforms to keep classifying their drivers as independent contractors in California.
• The court decided a state law regarding the independent contractor classification did not violate the state constitution.
• Going forward, app-based platforms will not have to treat their drivers as employees.

The ruling means that because app-based workers are independent contractors they are exempt from overtime and workers’ compensation laws.

Several drivers and the Service Employees International Union sued the state, claiming that a state law called Proposition 22 violated the California Constitution because it interfered with the state’s power to regulate a workers’ compensation system through legislation. Proposition 22, a ballot initiative that passed in California with 59 percent of the vote, granted app-based rideshare and delivery companies an exception to existing California law to classify their drivers as independent contractors, as well as provided the drivers with additional employee benefits, including a healthcare stipend, increased pay, and required pay for medical costs and lost income for drivers injured while driving.

California’s attorney general argued that the state constitution does not give the state legislature sole authority to regulate worker’s compensation.

The Supreme Court of California concluded that Proposition 22 is constitutional because it “does not itself restrict the Legislature’s authority to enact workers’ compensation legislation.” The court noted that the state legislature has made several exceptions to the general rule that a worker must be classified as an employee to qualify for workers’ compensation. For example, nonprofit volunteers and unpaid members of the sheriff’s reserve can qualify for workers’ compensation.

Proposition 22: The Basics

Approved by voters in November 2020, Proposition 22 establishes that app-based drivers are independent contractors, not employees. It also requires rideshare companies to provide certain benefits to drivers, including healthcare subsidies, occupational accident insurance, disability insurance, and a net earnings floor based on the state minimum wage.

The law states that app-based drivers are not employees because they can set their own hours and work for multiple platforms at the same time. Employees in California are entitled to minimum wage, overtime, workers’ compensation, paid sick leave, and other protections.

Next Steps

App-based companies are permitted to treat their California drivers as independent contractors, based on the California Supreme Court ruling that ended a long legal battle over driver classification. Although the ruling left the door open to other possible arguments to challenge Proposition 22, the ruling will not change how the app-based companies currently operate because it upheld a law that remained in effect during legal appeals.

This ruling will only apply to app-based delivery and rideshare drivers in California. The classification of gig workers has been under scrutiny in several state legislatures in recent years. Companies with gig workers may wish to review their worker classification policies and pay rates for drivers, while keeping abreast of any changes to laws in the states where they operate.