By Sam Ozer-Staton 

Last year, three giants of the rideshare industry — Uber, Lyft, and Doordash — spent more than $200 million to pass a California ballot measure that allowed “gig economy” companies to continue treating their employees as independent contractors. 

The rideshare industry hoped that the law would be a model for the nation. But on Friday, a California Superior Court judge ruled that it was unconstitutional and unenforceable. The court’s decision, which Uber has vowed to appeal, sets the stage for another round of high-stakes legal fights. It also revives a long-running political debate with broad implications for the future of work: Should gig economy workers be classified as employees who qualify for full benefits or as independent contractors who do not? 

That debate has played out most dramatically in California, where the rideshare industry has gone back and forth with powerful labor groups in a series of pitched battles. Prop 22, which passed in 2020 with 58% of the vote and was hailed as a decisive victory for gig economy companies, came after both California’s Supreme Court and state legislature moved to tighten regulations.

In a unanimous 2018 ruling, Dynamex v. Superior Court of Los Angeles, the California Supreme Court established a new three-part test that made it significantly more difficult for companies to classify workers as independent contractors. Under the so-called “ABC test,” gig economy workers would be considered employees if they performed a job that is part of the “usual course” of the company’s business. Workers would qualify as independent contractors only if the hiring company could prove:

“(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.”

Then, in 2019, Governor Gavin Newsom signed AB5, which codified and expanded on the ruling in Dynamex by adding the three-part test to the California Labor Code and setting up an enforcement regime. In an appeal, Uber’s lawyers said that classifying its workers as employees would cause the company “irreparable harm” and force it to “turn into a different company.” The rideshare companies refused to abide by AB5 and challenged the law in California’s 1st District Court of Appeals. At the same time, they went all in on a (successful) campaign to pass Prop 22, which effectively exempted “app-based drivers” from the law. 

Earlier this year, a handful of drivers and one of the state’s most powerful labor organizations, Service Employees International Union (SEIU), filed a lawsuit challenging the constitutionality of Prop 22. The petitioners argued that the initiative was unconstitutional because it limited the state legislature’s ability to allow workers to organize and have access to workers’ compensation.

In a decision on Friday, Alameda Superior Court Judge Frank Roesch agreed with the petitioners, ruling that a provision of the law restricted the legislature’s “plenary power” (or complete power) to extend worker compensation to app-based drivers. The judge acknowledged that California’s voters had “expressed their intentions that Prop 22’s provisions be severable,” but ruled that if the workers’ compensation provision is unconstitutional, “the whole Act should be stricken.” 

Aside from the legal wrangling, there is a substantive — and yet unresolved — political question around how to classify gig economy workers. Critics of the independent contractor model argue that the companies’ market power allows them to exploit workers by not extending the traditional protections of full employment, like a minimum wage and healthcare benefits. While the drivers can determine their own hours, the critics argue, they have little control when it comes to other business decisions, like deciding which clients to take on.

The companies argue that being forced to pay its workers traditional benefits would devastate their businesses at a time when drivers so desperately need the work. They say that adopting the employee model would effectively force mass driver lay-offs. Fewer drivers and worse service would hurt both workers and consumers, the companies argue.

Do you think it’s sustainable for rideshare companies to provide their drivers with the full benefits of employment? Would you as a consumer be willing to accept the likely trade-offs — like fewer drivers, higher prices, and slower service — in exchange for additional employee labor protections? 

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