California court upholds right to treat drivers as contractors as Uber, Lyft Score Victory

Uber Technologies Inc.,

UBER -0.93%

Lift Inc.

LYFT -2.87%

And other companies have taken a hit with a California court ruling that protects their independent-contractor model in the state and could boost their efforts to maintain that model elsewhere.

A state appeals court ruled that workers should continue to be treated as independent contractors under a California ballot measure known as Proposition 22.

Proposition 22, passed in November 2020, allowed these companies to continue treating their workers as independent contractors. A California court ruled it unconstitutional in 2021. Monday’s order reversed parts of the lower court ruling.

Uber and other companies have been locked in a global tug-of-war with regulators over how to offer workers in the so-called gig economy more benefits like paid sick leave and health insurance. Generally considered independent contractors.

California sued Uber and Lyft in 2020, claiming they violated the new state law by trying to reclassify their drivers as employees. Legal battle that culminated in Proposition 22 against Uber, Lyft, DoorDash Inc.

and Instacart Inc. It asked state voters to exempt them from the law. Corporations spent a record amount of nearly $200 million on California ballot measures.

If the ballot measure passes, the companies promised workers flexibility along with some benefits.

In television, print and radio ads at the time, companies told voters that reclassification would kill the flexibility workers enjoyed and significantly raise ride-share and supply prices for consumers.

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A group of ride-share drivers and labor unions challenged the constitutionality of Proposition 22. In August 2021, a California judge ruled it unconstitutional because it limited the state legislature’s power and ability to enact future legislation. The companies appealed that decision, which led to Monday’s ruling in the California First District Court of Appeal.

“Today’s ruling is a historic victory for the nearly 1.4 million drivers who rely on the freedom and flexibility of app-based work and the integrity of California’s initiative system to generate income,” the companies’ Prop 22 campaign said.

Shares of Uber and Lyft each rose 5% in after-hours trading following the ruling. DoorDash shares rose 4%.

While the court protected companies’ independent-contractor models, it struck down a provision that made it harder for workers to unionize. Amendments to workers’ rights to bargain collectively require a one-seventh majority in the California Legislature, a measure critics say will be difficult to meet. The court severed that requirement from the rest of the proposal.

“The right to organize in a union is a very powerful way for workers to challenge the exploitative business model of gig companies that profit from low wages and the silencing of their workers. Today’s ruling opens the door to possibility,” said the executive of the Service Employees International Union, a labor union that along with many other drivers challenged the constitutionality of 22. said board member Teresa Rutherford.

The group is considering appealing Monday’s ruling to the California Supreme Court.

Proposition 22 set the tone for gig-worker regulation in other parts of the country. Washington state passed a law last year protecting companies’ independent-contractor models. Companies joined forces to mount a ballot measure like 22 in Massachusetts, but that was blocked by the state’s Supreme Court in June.

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An effort to garner public support in California led companies to guarantee new protections.

Under Proposition 22, companies also offer other protections such as health insurance, occupational accident insurance and 30 cents for every mile driven for drivers who work 15 hours or more per week. Critics say the benefits are less than those offered to full-time employees.

Uber, which has a large global footprint, had to make big concessions outside the US when it agreed to give its UK drivers job status entitled to holiday pay and pension contributions after it exhausts its legal options in 2021.

Write to Preetika Rana at [email protected]

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