In a substantial win for app-based rideshare and delivery companies, the California Supreme Court unanimously upheld California Proposition 22 as constitutional on July 25, 2024.

California Ballot Initiative Proposition 22 (“Prop. 22”), officially known as the “Protect App-Based Drivers and Services Act,” passed in the November 3, 2020, general election with nearly 10 million Californians voting in favor (approximately 58% of the votes cast.) Prop. 22 allows app-based rideshare and delivery company drivers to be classified as independent contractors, and not as employees or agents.

Following its enactment, Prop. 22’s constitutionality was challenged in the California courts beginning with a February 2021 Superior Court ruling in Castellanos v. State of California, et al. Those challenges made their way up to the State’s highest court and on May 21, 2024, the California Supreme Court heard oral arguments to assess whether Prop. 22 should be upheld or struck down.

In their landmark ruling in Castellanos on July 25, 2024, the California Supreme Court unanimously upheld Prop. 22 as constitutional. While the possibility remains that the matter may be appealed and taken up by the U.S. Supreme Court, we view that as unlikely.

The ruling is of significance to businesses engaged in the app-based rideshare or delivery spaces and to drivers utilizing their platforms, particularly given the share of those markets that California accounts for and the influence of California developments in other states.

What is Prop. 22?

Prop. 22 arose in response to AB5, a law instituting the “ABC Test” for determining which workers may be treated as independent contractors rather than as employees.  Importantly, AB-5 did not directly address how to classify the growing number of gig economy workers.  Prop. 22 was created to fill that void by expressly permitting certain gig workers to be treated as independent contractors pursuant to straightforward criteria.

Under Prop. 22, drivers utilizing rideshare and delivery platforms are exempt from the ABC test and are independent contractors under California law, and not employees or agents, so long as their relationship with the companies satisfies four elements:

  1. The company does not require the driver to work on specific dates/times, or provide a minimum number of rides/deliveries;
  2. The company does not require the driver to accept any specific services;
  3. The company does not restrict the driver from working for other transportation network or delivery company, and;
  4. The company does not restrict the driver from working in any other lawful occupation or business.

At the same time, Prop. 22 requires covered companies to provide app-based drivers utilizing their platforms with significant benefits, including:

  • Minimum Wage: Rideshare and delivery companies must pay 120% of the local minimum wage for each hour a driver spends driving, but not time spent waiting for a request. Note that often complicated calculations must be performed to determine the applicable minimum wage when workers drive through cities with different local minimum wages;
  • Health Insurance Stipends: Companies must pay app-based drivers who usually work more than 15 hours per week (not including waiting time) a stipend toward the cost of their healthcare coverage;
  • Rest Time: Companies must limit app-based drivers from utilizing their platforms for more than 12 hours during a 24-hour period, unless the driver has been logged off for an uninterrupted six hours;
  • Hazard Insurance: Companies must fund occupational accident insurance coverage that will provide drivers disability payments equal to at least 66% of their average weekly earnings during the four weeks immediately preceding the injuries being suffered. The benefits must be paid for as long as 104 weeks; and
  • Other Requirements: Prop. 22 also prohibits workplace discrimination and requires that companies implement sexual harassment prevention policies, conduct criminal background checks as a part of allowing drivers to access their platforms, and ensure safety training for drivers.

Looking Ahead

As a consequence of the California Supreme Court’s ruling last week, app-based rideshare and delivery companies may continue to properly classify drivers as independent contractors pursuant to Prop. 22. In our view, the court made the right call and the gig business sector and drivers will both benefit from the clarity and benefits provided by Prop. 22.