What Does California’s Prop 22 Mean for the AB5 Law?

Prop 22 received majority support from California voters, allowing some businesses to continue categorizing rideshare drivers and delivery service providers as part of the “gig” economy.

rideshare driver
Learn all about Prop 22 — including how employers within and outside California must correctly classify their workers

Californians reversed course this election cycle on classifying independent contractors as employees, at least for some categories of workers. Proposition 22 won on the November ballot this year, allowing companies to continue to classify rideshare drivers and delivery service providers as independent contractors rather than employees. The measure was brought to the voters in response to California’s 2020 initiative AB5, which required gig workers to be put on the direct payroll of an organization, with commensurate wages, benefits, and protections.

Prop 22 received majority support from California voters, allowing some businesses to continue categorizing workers as part of the “gig” economy. The new law applies only to Delivery Network Company (DNC) couriers — workers who provide a delivery service through an online app or platform. These include rideshare drivers for companies like Uber and Lyft, as well as delivery services, like Instacart, DoorDash, and Postmates. With hundreds of millions of dollars at stake, these 5 companies contributed over $200 million in campaigns to garner what was ultimately successful support for Prop 22.

Why Prop 22 was created

In 2018, the California supreme court ruled employees were incorrectly categorized as independent contractors unless they satisfied an “ABC Test.” This three-pronged test was considered more stringent with regard to gig workers than a recent National Labor Relations Board ruling on independent contractors.

The ABC test requires companies to validate independent contractor status, only if the worker:

  1. Is free from the control and direction of the hiring entity in connection with the performance of the work
  2. Performs work that is outside the usual course of the hiring entity’s business
  3. Is customarily engaged in an independently established trade occupation or business of the same nature as the work performed
The reasoning behind the AB5 law: independent contractors did not have access to benefits and protections under the law that employees enjoyed.
To assure correct categorization of workers, California governor Gavin Newsom signed Assembly Bill 5 in September 2019, codifying the ABC test for California employers. AB5 went into effect January 1, 2020, mandating ABC test validation for all independent contractor arrangements in the state. The reasoning behind the AB5 law: independent contractors did not have access to benefits and protections under the law that employees enjoyed.

AB5 included some exemptions, however it did not exclude rideshare and delivery services. Tech companies filed lawsuits and ultimately looked to the voters for exemption with Proposition 22.

What Proposition 22 provides

Prop 22 carves out an exception to AB5 for DNC couriers. It allows rideshare and delivery companies to continue classifying drivers as independent contractors. But Prop 22 also provides specific benefits to drivers in California.

Wages

A base hourly compensation guarantee is set at 120% of the prevailing minimum wage in the jurisdiction of the driver. Drivers on the clock who earn less than the prevailing minimum wage will receive earnings of the minimum wage, plus 20% for hours they work. This will offer California drivers about $16.80 per hour minimum at current rates. Tips, either paid in cash or online, will not be factored into the minimum wage equation.

Healthcare

Drivers will receive a quarterly healthcare subsidy payment of 50 to 100% of the cost of the average Affordable Care Act contribution for California premiums. Drivers who work 25 hours per week or more will receive 100% payment; those who drive over 15 but less than 25 will receive 50% payment for healthcare premium costs.

Prop 22 carves out an exception to AB5 for DNC couriers. It allows rideshare and delivery companies to continue classifying drivers as independent contractors. But Prop 22 also provides specific benefits to drivers in California.

Wellness

Drivers will receive insurance to cover medical expenses and lost income in the event of an injury while on the job. Medical expense coverage up to at least $1,000,000, must be offered. Additionally, disability payments at 66% of the driver’s average weekly earnings from all network companies must be provided. Accidental death benefits — payable to spouses and children — must also be provided, including burial costs and death benefits.

Driver Rest will require app-based drivers cannot be logged in and driving on a network company’s platform for more than a cumulative total of 12 hours in any 24-hour period. The exception to this rule will be if the driver has logged off for an uninterrupted period of at least 6 hours. Drivers on the clock for more than 12 hours in a 24 hour period will not be able to log into the system for a minimum of 6 hours.

Policy initiatives

Companies will create Sexual Harassment Prevention policies and training to protect app-based drivers and customers. A process for drivers and customers to confidentially submit complaints will also be developed.

Driver safety training will be provided. A Zero Tolerance Policy will immediately suspend a driver’s access to the network in the event of a claim the driver is under the influence of drugs or alcohol while on the clock.

How to correctly classify workers

Generally, you consider a worker an independent contractor if they have direct control over the hours they work, their location, and when they choose to work.

Employers within and outside California must correctly classify their workers as employees or independent contractors under applicable national or state rules. Generally, you consider a worker an independent contractor if they have direct control over the hours they work, their location, and when they choose to work. They typically require little to no supervision, even if employers provide guidelines on how to perform the work.

An additional check is if the worker has the ability to (or does) provide the same service to other businesses. A medical coder, for example, might do their work late in the evening from their own home for more than one physician’s practice. This worker would correctly be classified as an independent contractor. A medical coder who works in a doctor’s office during their business hours, alternately, might be correctly classified as an employee.

What AB5 and Prop 22 mean outside California 

State and local legislators around the nation looked to AB5 as a model for shifting independent contractors to company employees, with their associated rights and benefits. As they waited for AB5 lawsuits to play out, passage of Proposition 22 may be a model for legislation outside the Golden State.

The provisions of Prop 22 may make new regulations affecting independent contractors more attractive to legislators in other states and municipalities. One of the main drivers of AB5 was to offer workers access to healthcare benefits. With these provided under Prop 22, and already agreed upon by rideshare and delivery companies, there may be an easier path to provide benefits if lawmakers mirror Prop 22’s provisions in their states.

Additional access to minimum wages and the other benefits and protections also included could result in states across the nation developing their own version of Prop 22. With the major companies already committed to provide these workers incentives in California, businesses may see similar legislation sweep the country.

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