California Updates: AB 2257 and Proposition 22

On January 1, 2020, California’s AB 5 became effective.  The new law provided that the ABC test must be used to evaluate whether a worker providing services in California is an employee for purposes of California’s Wage Orders, Labor Code provisions, Workers Compensation Law, and the Unemployment Insurance Code.  AB 5 contains numerous “exemptions” which were the product of intense industry-based lobbying efforts by various constituencies.  Like many industries, the motor carrier industry was unable to carve out an exemption that would help sustain the long-standing relationships between independent drivers and motor carriers.Almost immediately after its passage, there were efforts to repeal and amend AB 5.  In fact, in the first 10 months of 2020 there were more than thirty attempts to modify or repeal the law.  One such effort was successful.  On September 4, 2020, AB 2257 became effective.  AB 2257 maintains the essential framework of AB 5, added several exemptions, and, notably for the transportation industry, provided additional clarity surrounding the “business-to-business” exemption.Like many industries, like the motor carrier industry, “gig” economy companies were unable to successfully lobby for specific exemptions to AB 5’s ABC test.  As a result a group of powerful gig companies — Uber, Lyft and Instacart — decided to take matters into their own hands by fashioning a legislative fix and were able to get Proposition 22, “The App-Based Drivers as Contractors and Labor Policies Initiative,” on the November 3, 2020, ballot.  Proponents spent more than $200,000,000 in favor of its passage, and they won by garnering nearly 60% of the vote.

Proposition 22’s passage allows persons at Transportation Network Companies (TNCs) and Delivery Network Companies (DNCs) to maintain their status as independent contractors but provides those workers with certain benefits that are akin to benefits provided to traditional employees.  Under this new law, which becomes effective on or about December 16, 2020, an app-based driver is an independent contractor and not an employee if the following conditions are met:

  • the networking company does not unilaterally prescribe specific dates, times of day, or a minimum number of hours during which the app-based driver must be logged into the platform
  • the networking company does not require the app-based driver to accept any specific rideshare service or delivery service request as a condition of maintaining access to the platform
  • the network company does not restrict the app-based driver from working in any other lawful occupation or business

The new law also requires that there must be a written agreement between the TNC or DNC and the app-based driver with an “appeals process” for drivers whose contracts are terminated.  It also requires certain pay and benefits to workers.  As for earnings, app-based drivers have a guaranteed “net earnings floor” comprised of 120 percent of the applicable minimum wage of “engaged time”[1] and TNCs and DNCs cannot take any tips/gratuities given to the driver.  Moreover, calculation of the “net earnings floor” does not include/account tips/gratuities.  The law also requires mileage reimbursement at thirty cents ($0.30) per engaged mile for 2021 and this rate must be adjusted for inflation on an annual basis.  Amongst other things, the new law also provides for a quarterly healthcare subsidy, certain insurance, provision of safety training, development of anti-harassment policies and training, and requires background checks of drivers.

At this point, other than application to TNCs and DNCs, it is unclear what impacts Proposition 22 will have on other industries.  It still does nothing to address motor carriers who are still in the crosshairs of AB 5.

[1] “Engaged time” starts when an app-based driver accepts a rideshare or delivery request to when the app-based driver completes that rideshare or delivery request; it does not include time spent on rideshare/delivery services after the request has been cancelled or any time spent on a rideshare or service where the driver abandons performance prior to completion.