In late July, California's top state court upheld Proposition 22, a voter-approved measure allowing app-based services such as Uber, Lyft, Grubhub and DoorDash to classify drivers in the most populous U.S. state as independent contractors rather than employees.
The California Supreme Court ruling was a major victory for the ride-hailing industry, which for cost and other reasons, has a vested interest in classifying gig workers as independents. While only applicable in California, labor law experts expect momentum to spread to other states where the issue hasn't yet been tested.
"The companies and proponents of Prop 22, including some gig-based workers, are going to try to scale this to other states," said Caroline Donelan, partner in the labor and employment group at Blank Rome. "And at the same time, there's going to be more pushback from unions and opponents of Prop 22 to go straight to various state legislatures to seek more protections for workers."
Employees are generally entitled to a broader swath of benefits than independent contractors, but Proposition 22 extended certain wage and insurance-related benefits to rideshare and delivery drivers, while protecting their independent status.
"Prop 22 is a testament to what can be done when we listen to drivers and couriers," Uber posted on its website after the California top court's decision. "With growing frequency, policymakers are shifting away from outdated discussions, based on a binary choice between employment with benefits, or independence with none. Instead, an increasing number of policymakers worldwide—from New York State and Massachusetts, to Australia and Brazil—are actively engaging with drivers and couriers to develop innovative models that preserve their independence while also requiring important new benefits and protections. We stand ready to ensure that progress continues."
In one way or another, the rideshare labor battle affects a good portion of the U.S. population. While on-demand apps are most popular in and close to urban areas, one in five urban Americans have used ride-hailing services, including 15% of those living in suburban areas, according to Pew Research.
The success in California after years of uncertainty gives rideshare companies "some wind in their sails," said Gary McLaughlin, partner at Mitchell Silberberg & Knupp. "I think it provides a template for the types of laws they could try to get passed in other states, whether it's through ballot initiatives, where that's an option, or legislation," he said.
After the most recent verdict, Lyft said in a statement it was "thrilled" with the decision. "After Prop. 22 went into effect, more than 80% of California drivers surveyed said that it has been good for them. In fact, median hourly earnings of drivers on the Lyft platform in California were 22% higher in 2023 than in 2019," the company said in a press release.And in the early days of Prop 22, the Chief Policy Officer of Lyft was quoted in the Washington Post as saying: "I think Prop 22 has now created a structure for us to discuss with leaders in other states and Washington, potentially. We think that prop 22 has now created a model that can be replicated and can be scaled."
Some other states have tried to rein in ridesharing companies' practices with respect to worker benefits, and there's been a lot of legal jockeying over the past several years about whether they should be considered independent contractors for the purposes of state law. Now, said James Yukevich, founding partner of Yukevich Cavanaugh, "the California decision is a model for other states to take a good close look at."
Here are some keys to where the nationwide labor battle, involving some of the most powerful technology companies and biggest labor unions, is headed after the California decision. Notably, it's also all occurring during an election year, with state ballot measures upcoming in November and Tony West, the brother-in-law of Democratic Party nominee for president, Kamala Harris, taking a leave of absence from his role as Uber's chief legal officer to advise her campaign.
New York, Massachusetts, Pennsylvania, Minnesota actions
Florida passed a law a few years ago, the Transportation Network Companies Act, allowing rideshare drivers to be classified as independent contractors under certain conditions. In other high-population states, there has been a wave of recent actions and compromises between the companies and the states.
In May, Minnesota lawmakers passed a measure in which drivers continue to be classified as independent contractors, and don't receive benefits like unemployment insurance and overtime. However, it sets a minimum wage of $1.28 per mile and 31 cents per minute for gig drivers, replacing a higher minimum that Minneapolis had adopted which prompted threats by Uber and Lyft to discontinue operations in the city.
There have also been a number of lawsuits by states aiming to improve conditions for drivers. In November, New York announced two settlements totaling $328 million with Uber and Lyft to resolve multi-year investigations. The settlements involve back pay to drivers and a new minimum driver "earnings floor," paid sick leave and other improvements in drivers' working conditions. Uber's portion of the settlement, $290 million, and Lyft's portion, $38 million, were slated for distribution to current and former drivers.
And in late June, Massachusetts settled a case against Uber and Lyft that requires a minimum pay standard of $32.50 per hour and requires a suite of benefits and protections for drivers. Uber and Lyft will also pay a combined total of $175 million to the state, much of which will be distributed to current and former drivers. The state had been seeking a court determination that Uber and Lyft drivers are employees, not independent contractors.
A statement from Massachusetts' attorney general's office said the settlement resolved its multi-year litigation against Uber and Lyft and "puts a stop to the threat of the companies' attempting to rewrite state employment law via a 2024 ballot initiative" which would have included an earnings standard that did not guarantee a minimum wage.
Meanwhile, in Pennsylvania, a federal district court judge in late July dismissed with prejudice a case against Uber, as to whether workers should be classified as employees or contractors for purposes of the federal Fair Labor Standards Act and certain state statutes. The case involved two hung juries, and the court's dismissal was based on the notion that the issue was so "intractable" that it would be a waste of time to give plaintiffs a "proverbial third 'bite of the apple.'"
"It has become clear to the Court that this 'either-or' determination simply does not comport with the nature of the gig economy, at least as it pertains to Uber Black," wrote senior judge Michael M. Baylson in his opinion.
Gig workers might see more efforts to unionize
Union leaders have made clear they want gig drivers to have more benefits than are available today. It's possible they'll try to force the unionization issue through ballot initiatives or by supporting legislation in more liberal states, which have historically been more amenable to union efforts.
"Just as companies are galvanized right now, unions are also galvanized right now," Donelan said.
In Massachusetts, for example, the drivers have been working for more than two years for a path toward unionization. The drivers had support from the United for Justice ballot committee, which includes 32BJ SEIU, the Service Employees International Union and the International Association of Machinists. "Over the past two years Massachusetts Uber and Lyft drivers have exposed the gig economy for what it is: an exploitation model centered on bilking workers, consumers and taxpayers alike," said SEIU President April Verrett, in a press release. "Drivers know that the best antidote to their industry's sub-minimum wages, unfair deactivations and unsafe working conditions is the power to collectively bargain for better standards through a union. SEIU is fully committed to backing the courage and creativity of rideshare drivers as they rewrite the rules in the face of labor law that has counted them out and written them out for too long."
Even after the Massachusetts settlement, voters in the state will be weighing in on the issue in November, through a ballot initiative that would allow rideshare drivers to form unions and collectively bargain with Uber, Lyft, and similar companies.
"Unions are interested in these people becoming employees, or at least being allowed to unionize. Transportation is usually a pretty highly unionized sector," said John Wicker, partner at Stradling Yocca Carlson & Rauth.
There's also the potential for states like California to pursue legislation to allow ride-share drivers and certain other gig workers to become eligible for workers' compensation, an issue the California court left open. "Even in California, the issue is not necessarily over," said Gregory P. Feit, senior associate at Reavis Page Jump.
