California court decides for Uber and Lyft in ride-hailing case

SACRAMENTO, California. – App-based ride-hailing and delivery companies like Uber and Lyft can continue to treat their California drivers as independent contractors, a state appeals court ruled Monday, allowing the tech giants to circumvent other state laws requiring worker protections and perks .

The ruling largely upholds a voter-approved law called Proposition 22, according to which said drivers are independent contractors for companies like Uber and Lyft and aren’t eligible for benefits like paid sick leave and unemployment insurance. A 2021 lower court ruling had said Proposition 22 was illegal, but Monday’s ruling overturned that decision.

“Today’s ruling is a victory for app-based workers and the millions of Californians who voted for Prop 22,” said Tony West, Uber’s chief legal officer. “We are pleased that the court respected the will of the people.”

The ruling is a defeat for the unions and their allies in the state legislature, which passed legislation in 2019 requiring companies like Uber and Lyft to treat their drivers like employees.

“Today the Court of Appeals voted to prioritize powerful corporations over workers and allow corporations to buy their way out of our state’s labor laws and subvert our state constitution,” said Lorena Gonzalez Fletcher, chair of the California Labor Federation and a former state assemblyman who drafted the 2019 law. “Our system is broken. To say we are disappointed with this decision would be an understatement.”

The ruling was not a complete defeat for the unions, as the court ruled that companies could not prevent their drivers from joining a union and collectively bargaining for better working conditions, said Mike Robinson, one of the drivers who filed the lawsuit against the proposal 22

“Our right to band together and bargain collectively creates a clear path for drivers and couriers to hold giant gig corporations accountable,” he said. “But make no mistake, we still believe that Prop 22 – in its entirety – is an unconstitutional attack on our fundamental rights.”

The California legislature passed legislation in 2019 that changes the rules of who is an employee and who is an independent contractor. This is an important distinction for companies, as employees are covered by a wide range of labor laws that guarantee them certain benefits, while independent contractors are not.

While the law applied to many industries, it has had the greatest impact on app-based ride-hailing and delivery companies. Their business relies on making contracts with people to use their own cars to drive people and make deliveries. Under the 2019 law, companies would have to treat these drivers as employees and provide certain benefits that would significantly increase companies’ expenses.

In November 2020, voters agreed to exempt app-based ride-hailing and delivery companies from the 2019 law by approving a ballot proposal. The proposal included “alternative benefits” for drivers, including a guaranteed minimum wage and health insurance subsidies if they work an average of 25 hours a week. Companies like Uber, Lyft and DoorDash spent $200 million on a campaign to make sure it went through.

Three drivers and the Service Employees International Union sued, arguing that the election proposal was illegal in part because it restricted the state legislature’s powers to change laws or pass legislation on worker compensation programs. In 2021, a state judge agreed with them and ruled companies like Uber and Lyft were not exempted.

On Monday, a state appeals court overturned that decision, allowing the companies to continue treating their drivers as independent contractors.

The verdict may not be the final decision. The Service Employees International Union could still appeal the decision to the California Supreme Court, which could decide to hear the case.

“We will consider all of these options as we decide how to ensure we continue to fight for these workers,” said Tia Orr, executive director of SEIU California.