California Rules Uber, Lyft Drivers Are Contractors

In a landmark decision, the California Supreme Court ruled that drivers for Uber and Lyft will remain classified as independent contractors rather than employees. This ruling represents a crucial victory for the rideshare giants, who have been battling increasing resistance from labor groups advocating for better worker protections. The court’s decision specifically upheld Proposition 22, a state ballot measure that allows companies to categorize their drivers as gig workers. This measure, passed by California voters in November 2020, was deemed constitutional by the court, concluding a protracted three-year legal struggle. Initially, in 2021, a state Superior Court judge had ruled the measure “unenforceable.” However, this decision was overturned by a 2023 state Appeals Court, leading to the Supreme Court’s final affirmation.

The implications of this ruling extend beyond Uber and Lyft to other gig economy companies like DoorDash, whose drivers are also affected by the decision. As independent contractors, these drivers are not covered by state worker compensation laws, which would otherwise offer them protections and benefits akin to those of traditional employees. Uber has celebrated the ruling, asserting that it preserves drivers’ freedom to work according to their preferences, choosing when and how they wish to operate. Nonetheless, this flexibility comes amid ongoing criticism from labor organizations that argue for higher wages and the legal protections that come with formal employment status.

The backdrop of this legal battle centers on Proposition 22, which provides a framework for contract employees to earn 120% of the state’s minimum wage, currently set at $16 per hour. Additionally, the measure includes benefits such as healthcare stipends, occupational insurance, death insurance, and an extra 30 cents per mile, adjusted for inflation based on 2021 figures. However, these benefits are limited to the time drivers spend actively transporting passengers and exclude any additional mileage driven while waiting for a fare. Furthermore, the benefits are only accessible to drivers who work more than 15 hours per week. While rideshare companies staunchly defend Proposition 22, critics argue that the benefits it offers are still significantly less than those available to full-time employees.

Uber and Lyft’s treatment of drivers has come under scrutiny in various states, leading to significant legal and financial repercussions. In New York, a comprehensive investigation revealed that both companies had withheld wages and benefits from their drivers. This investigation culminated in a substantial settlement, with Uber agreeing to pay $290 million and Lyft $38 million, benefitting over 100,000 drivers in the state. Similarly, in Massachusetts, Uber and Lyft reached a $175 million settlement, establishing a $32.50 minimum hourly wage for drivers. Despite these settlements, the companies have managed to avoid reclassifying their drivers as full-time employees, maintaining the independent contractor status that underpins their business models.

The California Supreme Court’s ruling solidifies the status of rideshare drivers as independent contractors, allowing Uber and Lyft to continue their current operational practices in the state. However, this legal victory does not mark the end of challenges for these companies. They must continue to address the criticisms and demands of labor groups seeking better compensation and more comprehensive employee rights. As the gig economy evolves, the tension between business flexibility and worker protections is likely to remain a contentious issue, with potential implications for similar legal battles in other jurisdictions.