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In July 2024, California-based gig economy companies prevailed when Proposition 22 was upheld by the California Supreme Court. The court determined that Proposition 22 does not wrongly curtail the legislature’s power over worker protections by categorizing workers as independent contractors instead of as employees. The Proposition was created in 2020 for app-based drivers who are defined as workers who (a) provide delivery services on an on-demand basis through a business’s online-enabled application or platform; or (b) use a personal vehicle to prove prearranged transportation services for compensation via a business’s online-enabled application or platform.
In addition to mandating classification, Proposition 22 also enacted labor and wage laws as follows:
- Payments for the difference between net earnings, excluding tips, and a net earnings floor based on 120% of the state minimum wage for hours worked plus 30 cents per engaged mile, adjusted for inflation after 2021;
- Limiting app-based drivers from working more than 12 hours during a 24-hour period, unless the driver has been logged off for an uninterrupted 6 hours;
- For drivers who average at least 25 hours per week of engaged time during a calendar quarter, require companies to provide healthcare subsidies equal to 82% the average California Covered (CC) premium for each month;
- For drivers who average between 15 and 25 hours per week of engaged time during a calendar quarter, require companies to provide healthcare subsidies equal to 41% the average CC premium for each month;
- Require companies to provide or make available occupational accident insurance to cover at least $1 million in medical expenses and lost income resulting from injuries suffered while a driver was online (defined as when the driver is using the app and can receive service requests) but not engaged in personal activities;
- Require the occupational accident insurance to provide disability payments of 66% of the driver’s weekly average earnings during the previous 4 weeks before the injuries suffered (while the driver was offline but not engaged in personal activities) for upwards of 104 weeks (about 2 years);
- Require companies to provide or make available accidental death insurance for the benefit of a driver’s spouse, children, or other dependents when the driver dies while using the app;
- Require companies to develop anti-discrimination and sexual harassment policies; training programs for drivers related to driving, traffic, accident avoidance, and recognizing and reporting sexual assault and misconduct; have zero-tolerance policies for driving under the influence of drugs or alcohol; require criminal background checks for drivers.
Gig economy companies contributed over $200M in a multiyear fight to preserve Proposition 22. Had Proposition 22 not been upheld, companies employing gig workers could have faced significant additional costs to pay drivers as employees, passing increased costs to the consumer/passengers.
While the issue seems to be currently settled in California, other states and cities are attempting to institute legislation regarding app-based gig workers and their classifications. Companies in the gig economy should regularly engage with their legal teams or preferred counsel to remain in compliance in the locations that they operate.
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