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Gig firms expected to push California law to other states

Lyft Uber

App-based rideshare and delivery companies will likely seek to build on a recent California ballot victory to limit potential employment-related liabilities they may face in other states, employment law experts say.

Proposition 22, a ballot initiative that was passed by California voters earlier this month following heavy promotion by companies such as Uber Technologies Inc., Lyft Inc. and DoorDash Inc., addresses the realities of today’s workforce and will benefit employers and workers, its proponents say.

Opponents, however, have criticized the ballot initiative as being a loss for workers.

The proposition carves out app-based drivers from benefits employers are required to provide, including sick leave, workers compensation coverage and unemployment.

The initiative was a response to passage of Assembly Bill No. 5 in 2019, which established a legal test for determining who can be classified as an independent contractor in California.

A state court ruling that was upheld by an appeals court said that Uber and Lyft drivers did not meet the standard for independent contractors established by the law. 

Prop 22 won the approval of 59% of California voters after its gig economy proponents, including Lyft, Uber and DoorDash, which are all based in San Francisco, spent an estimated $205 million to promote the measure, which was more than 10 times the amount spent by its opponents, including organized labor.

Under its provisions, network companies will pay a quarterly health care subsidy to qualifying app-based rideshare and delivery drivers, based on the number of hours worked, provided they have spent a minimum average of 15 hours a week of engaged time completing rideshare requests or delivery requests. They can also receive up to $1 million in “occupational accident” insurance to cover medical expenses and lost income for injuries suffered while on the job.

The measure also provides for a minimum earnings guarantee tied to 120% of the minimum wage, with no maximum, and compensation for vehicle expenses, among other provisions.

DoorDash and Lyft said they intend to promote the concept behind the proposition elsewhere.

“We’re ready to work with legislators and stakeholders everywhere and across the political spectrum on policies that protect Dasher flexibility and extend portable and proportional benefits,” DoorDash said in a statement.

Lyft said in a statement it will “continue to fight for drivers, whether that fight is in the legislature or at the ballot box.”

An Uber spokesman declined to comment.

The gig economy had created “a very significant shift in employment law by creating this new type of worker,” said Katherine S. Catlos, a partner with Kaufman, Dolowich & Voluck LLP in San Francisco.

The question of whether a worker is an employee or independent contractor “has always been binary, and in the modern economy, the binary system doesn’t work anymore, because you’ve got gig workers,” who can be drivers when they want to, said Todd H. Lebowitz, a partner with Baker & Hostetler LLP in Cleveland.

“It would be great to have a middle ground” between employees and independent contractors, which the law has not permitted but which the California proposition carves out, he said.

Until now, for instance, employers might not permit workers to work more than 40 hours a week because they do not want to pay them overtime.

Ms. Catlos said Prop 22 is positive for workers because they will receive certain health benefits.

“I definitely see this being used in other states and quite possibly the federal level,” although it may face some court battles, she said.

Mr. Lebowitz said he expects workers in other sectors in which independent contractors are prevalent — including trucking and logistics, and appliance and floor covering installations — will seek similar arrangements.

Richard Reibstein, a partner with Locke Lord LLP in New York, who coheads the law firm’s independent contractor compliance and misclassification practice, said a 2015 report by the U.S. Government Accountability Office and a 2018 report by the Bureau of Labor Statistics indicate independent contractors preferred their work arrangements to traditional employment.

“Many legislatures and politicians seem to overlook this key stakeholder, the freelancers themselves,” he said.

However, Terri Gerstein, the director of the Cambridge, Massachusetts-based State and Local Enforcement Project at Harvard Law School’s Labor and Worklife program, which works with government agencies and officials engaged in enforcing workplace laws, said the proposition misleadingly says workers will receive 120% of minimum wage, but “excludes an awful lot of the work time that drivers would be doing,” including time spent cruising before they are summoned to pick up a rider, or providing maintenance on their cars, for which an employee would be paid.

Big cities such as New York may be the first to adopt similar legislation, said Teresa D. Teare, a partner with Shawe Rosenthal LLP in Baltimore.

However, Michael W. Kelly, a partner with Squire Patton Boggs in San Francisco, said the Biden administration may attempt to roll back the proposition with an executive order.

“There is a real possibility that this will be something the Biden administration will pursue, because it has appeal to key constituencies in the Democratic base including labor unions and can be accomplished without going through Congress,” Mr. Kelly said.