Vice President, Labor Policy, U.S. Chamber of Commerce
November 12, 2020
In the days after an election, one can find countless articles analyzing the results of myriad races, and to be sure, this year is no exception. While some aspects of the 2020 election remain unresolved one item of interest in California was settled decisively. By a vote of 58.4% to 41.6%, voters in the Golden State passed a ballot measure—Proposition 22—which was a repudiation of the state legislature’s ill-conceived law known as AB 5. As readers of this blog know, AB-5 sought to make the use of independent contractors in certain industries nearly impossible.
Although Proposition 22 did not undo AB 5 altogether, by its terms drivers for app-based rideshare and delivery companies can remain independent contractors rather than employees provided that a company using their services do not set their hours, require the acceptance of specific ride or delivery requests, or restrict their ability to work for other companies.
The passage of Proposition 22 culminates, at least in large part, a legal tug-of-war that has been happening for over two years. It began with the California Supreme Court, which in 2018 unilaterally changed its standard for interpreting whether an individual can be classified as an independent contractor. The Court’s decision in a case known as Dynamex rewrote the existing law and adopted a modified “ABC” test for evaluating an employment relationship. The ABC test is known as such because it uses three factors (A,B, and C) to evaluate an independent contractor relationship. Flunk any one of the three factors and a worker becomes an employee. Critically, Dynamex removed an important element of Part B of the test that had facilitated business relationships with independent contractors in other states using an ABC test of their own.
Not to be outdone, the state legislature, at the urging of organized labor, decided to codify the DynamexABC test in 2019, which it did by passing AB 5. The upshot of the revised test was that it became much harder for someone to be classified legally as an independent contractor, leaving employers either to assume all of the liability associated with an employer-employee relationship or to stop using the services of independent contractors who did not meet AB 5’s stringent test.
It did not take very long after AB 5 went into effect this year for enforcement efforts to begin, and on May 5, California Attorney General Xavier Becerra, as well as the city attorneys of San Diego, Los Angeles, and San Francisco, filed a lawsuit against the popular rideshare companies Uber and Lyft alleging that they were violating the law through their use of independent contractors who drive utilizing the companies’ rider-driver pairing technology. By October, the legal case seemed destined to go against the companies when the First District Court of Appeal, Division Four issued a 74-page opinion ordering them to classify drivers using their respective platforms as employees rather than independent contractors.
Meanwhile, the legislature received enough backlash from individuals whose lives it had upended that it later passed legislation to provide dozens of exceptions for certain industries, which one might say is not the hallmark of well-made legislation in the first instance. However, it did no such thing for the gig economy companies that AB 5 had targeted.
For their part, opponents of AB 5 began the effort to pass a ballot initiative to exempt app-based drivers and delivery workers from the law and thereby allow them to remain independent contractors. To be sure, organized labor, which was eager to unionize the thousands of workers who would be forced into employment relationships, campaigned vehemently against Proposition 22 with its usual overheated rhetoric, but in the end voters apparently were not swayed. Given the popularity of things like ridesharing and on-demand delivery, it seems that there are some limits to what the public will, or won’t, support just because labor leaders tell them to.