California court upholds Prop 22 in victory for Uber, Lyft, DoorDash

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A California appeals court on Monday reversed a lower court ruling finding that Proposition 22, the voting measure passed in November 2020 that classified Uber and Lyft drivers as independent contractors rather than employees, is illegal.

Three appeals court judges’ decision, first reported by The Wall Street Journal, is a victory for app-based companies that rely on gig workers to ferry passengers and deliver meals but don’t pay for expenses that an employer would pay, such as unemployment insurance, sick leave, and other business expenses.

In August 2021, Frank Roesch, a superior court judge, ruled that Prop 22 was unconstitutional and therefore “unenforceable”. Roesch said Prop 22 limited the authority of the state legislature and its ability to pass future legislation. The companies appealed that decision, leading to today’s ruling in the California First District Court of Appeal.

The reversal of that decision not only preserves the independent contractor model in California, but could also boost the efforts of companies like Uber, DoorDash and Lyft in other states. All three companies saw shares rise in after-hours trading following the court’s ruling.

Still, the battle for Prop 22 isn’t over yet. The Services Employees International Union (SEIU), which filed a lawsuit against Prop 22 in early 2021, is expected to appeal the decision to the California Supreme Court. The higher court would have several months to decide whether to hear the case, but in the meantime Prop 22 remains in effect.

Prop 22 made it to the 2020 California vote after the state sued Uber and Lyft that year for saying they violated AB-5, the state’s new law that sought to reclassify drivers as employees. After several legal wrangles, the companies — including DoorDash and Instacart — asked state voters to exempt them from the law. Together, they spent $200 million advertising the ballot measure and convincing drivers that Prop 22 would give them more flexibility and some benefits. California voters approved the proposal by about 59% to 41%.

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