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

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

The decision by three appeals court judges, first reported by The Wall Street Journal, is a win for app-based companies that rely on gig workers to ferry passengers and deliver meals, but do not pay for costs that an employer would, like 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 state legislature’s authority and its ability to pass future legislation. The companies appealed that decision, which led 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 push the efforts of companies like Uber, DoorDash and Lyft in other states. All three companies saw shares jump in after-hours trading following the court decision.

Still, the battle over Prop 22 isn’t yet over. The Services Employees International Union (SEIU), which filed a lawsuit challenging 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 will remain in effect.

Prop 22 made it to California’s 2020 ballot after the state sued Uber and Lyft that year, saying they were in violation of AB-5, the state’s new law that sought to reclassify drivers as employees. After several legal squabbles, the companies — including DoorDash and Instacart — asked state voters to exempt them from the law. They spent a collective $200 million advertising the ballot measure and convincing drivers that Prop 22 would provide them with more flexibility as well as some benefits. California voters passed the proposition roughly 59% to 41%.

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