California court upholds treatment of app-based drivers as contractors

A California state appeals court on Monday revived a ballot measure that allowed app-based services such as Uber Technologies Inc. and Lyft Inc. to treat drivers as independent contractors rather than employees, marking a major victory for the industry. .

A three-judge panel of the San Francisco-based court reversed a lower court decision in 2021 that found the ballot measure, known as Proposition 22, unconstitutional.

The appeals court’s ruling struck down Prop 22’s provision that restricts gig workers from joining unions, but the ruling was still seen as a win for Uber and Lyft.

Shares of Uber ( UBER ) and Lyft ( LYFT ) gained nearly 5% in after-hours trading.

The Service Employees International Union (SEIU) and several gig drivers who challenged Prop 22 will likely appeal the decision to the California Supreme Court, the state’s highest court.

Prop 22 was approved by nearly 60% of voters in California in November 2020. It exempted app-based drivers from a 2019 state law known as AB5 that makes it harder to classify workers as independent contractors rather than employees.

The issue is critical for gig companies because contractors don’t have the same legal protections as employees and, according to several studies, can cost up to 30% less.

Prop 22 allows app-based transportation services to qualify drivers as independent contractors if they are paid minimum wage while transporting passengers and receive reimbursement and health benefits.

The 2021 decision striking down Prop 22 found that it violated the state constitution because it limited the legislature’s power to make concert promoters subject to California’s workers’ compensation law.

An appeals court on Monday disagreed. But the court found the provision of Proposition 22 that limited gig workers’ ability to join unions and bargain collectively was invalid and severed it from the rest of the ballot.

Uber Chief Legal Officer Tony West said in a statement that the decision was a victory for gig workers and the millions of Californians who voted for Prop 22.

“Across the state, drivers and couriers said they are pleased with Prop 22, which gives them new benefits while preserving the unique flexibility of app-based work,” West said.

But SEIU California President David Huerta said companies can’t spend millions of dollars “buying themselves laws.”

“When concert companies can spend over $200 million to pass a law that violates our state constitution instead of investing in workers, it’s clear that California needs better safeguards for our democracy,” Huerta said.