In March, the California Court of Appeal in Castellanos v. State of California, issued an opinion that permits app-based driver and delivery businesses to properly classify workers as independent contractors.
The California Legislature’s codification of the holding in Dynamex (“AB5”), established a test to discern between employees and independent contractors. Workers are presumed to be employees with few exceptions. The consequence has been that it is nearly impossible for workers and businesses of any kind to lawfully engage with each other on an independent contractor basis and for businesses to retain independent contractors without incurring the risks of governmental audit and being deemed to have improperly classified workers resulting in significant reimbursements and penalties. Thus, application of AB5 has been the subject of extensive litigation.
In an action brought by the State of California against Uber and Lyft, the State claimed that these businesses violated AB5 by failing to classify their drivers as employees. In response, several app-based companies (including DoorDash and Instacart) asked California voters, in ballot measure Proposition 22, which passed in late 2020, to exempt app-based drivers and delivery businesses from AB5.
Despite Proposition 22, litigation over employee vs. independent contractor classifications continued. Those opposed to Proposition 22 contend that it is unconstitutional because it: (1) limits the State Legislature’s oversight of workers’ compensation for app-based drivers and delivery workers; (2) restricts these workers from collective bargaining; and (3) establishes an unachievable 7/8s majority vote to amend Proposition 22’s collective bargaining terms.
In Castellanos, a group of app-based drivers in California and the Services Employees International Union sought a writ of mandate, claiming Proposition 22 unconstitutionally limits the power of California’s legislature to govern by removing its abilities to grant workers the right to organize and give access to the state’s workers’ compensation program. The presiding California Superior Court judge agreed and ruled that Proposition 22 violates the California Constitution and is unenforceable, because it interferes with the state’s legislative authority and future ability to pass legislation. The Court of Appeal’s reversal of this ruling allows Proposition 22 to stand with the exception of its limitation on lawmakers’ ability to enact legislation that amends Proposition 22, such as allowing gig workers to unionize. On this issue, the Court of Appeal scuttled Proposition 22’s clause that restricts collective bargaining by workers because it invades the legislature and judiciary’s authority.
Although the opinion in Castellanos restores some rights for app-based driver and delivery businesses to classify workers as independent contractors, this is likely not the last word on the issue. The Castellano decision is fully expected to be appealed.
Before you decide to classify workers as employees or independent contractors it is essential that you discuss the matter on a worker-by-worker basis with a qualified California business and employment attorney.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
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