On November 3, 2020, California voters passed Proposition 22, an exemption from AB5 for app-based drivers and couriers who use personal vehicles/transportation to provide on-demand services. As detailed in previous posts, Governor Gavin Newsom signed AB5 into law in September 2019. Essentially, Proposition 22 filled a void caused by legislative inaction, and created a hybrid model between contractors and employees; essentially a “contractor-plus limited benefits” model.

AB5 expanded the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court. Specifically, it applied Dynamex’s “ABC Test” to both California Wage Orders and the California Labor Code, creating the presumption that workers in California are employees, not independent contractors – unless an employer can satisfy a three pronged test known as the ABC test. The ABC test presumes workers are employees, and not independent contractors, unless the employer can establish that: A) the company does not control or direct what the worker does, either by contract or in actual practice; B) the worker performs tasks outside of the hiring entity’s usual course of business; and C) the worker is engaged in an independently established trade, occupation, or business.

Under Prop 22, drivers offering services for rideshare and delivery companies (Uber, Lyft, and Postmates) are now exempt from the ABC test. However, rideshare and delivery companies are now required to provide drivers certain benefits, including the following:

• Minimum Wage: Rideshare and delivery companies must pay 120% of the local minimum wage for each hour a driver spends driving, but not time spent waiting (note that there are very complicated calculations for that minimum wage when driving through cities with different local wages);
• Stipend Towards Health Insurance: For drivers who usually work more than 15 hours per week (waiting time not included), companies are now required to help pay for their health insurance;
• Rest Time: Companies must limit app-based drivers from working more than 12 hours during a 24-hour period, unless the driver has been logged off for an uninterrupted six hours;
• Hazard Insurance: Provide occupational accident insurance to allow drivers disability payments of 66% of their average weekly earnings during the previous four weeks before the injuries were suffered for upwards of 104 weeks; and
• Other Requirements: Prohibit workplace discrimination and: (1) develop sexual harassment policies; (2) conduct criminal background checks; and (3) mandate safety training for drivers.

Notably, Prop 22 can only be amended if proposed changes are consistent with the new law’s purpose and if seven-eighths of lawmakers favor the amendment.

The passage of Prop 22 will likely cause other industries to campaign for independent contractor classification with voters or with the state legislature, especially given the margin in which Prop 22 passed by. Alternatively, other industries may pursue similar models as their rideshare counterparts in order to argue that they also fall under the new law set forth in Prop 22.

As we discussed here , other industries have already been able to gain exemptions to AB5. For example, earlier this September, the California legislature passed Assembly Bill 2257, which permitted musicians, fine artists, freelance writers, photographers, and translators exemptions from AB5 to continue working as independent contractors, rather than as employees.

Stay tuned as we continue to provide you with updates on AB5 as there will be sure to be even more changes to the law in the coming weeks and months.

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