March 2023: California Court of Appeal Held That App-Based Driver and Delivery Businesses Can Classify Workers as Independent Contractors

Update Applicable to:
All businesses with App-based drivers and delivery businesses in the state of California.

What happened?
On March 13, 2023, in Castellanos v. State of California, the California Court of Appeal handed down a pink unicorn decision in favor of app-based driver and delivery businesses that permits them to properly classify workers as independent contractors. It breathed life back into Proposition 22 (Bus. & Prof. Code sections 7448-7467) and California’s gig economy.

What are the details?
In 2020, California voters approved Proposition 22, the “Protect App-Based Drivers and Services Act,” which allowed app-based rideshare and delivery companies to hire drivers as independent contractors if certain conditions were met. This week the California Court of Appeal mostly upheld the Proposition as constitutional.

Proposition 22 was enacted in 2021 and was quickly challenged in California state court by various groups seeking a declaration that it violated California’s Constitution. The trial court ruled that Proposition 22 was invalid for several reasons, including that the legislation intruded on the legislature’s authority to create worker’s compensation laws, limited the Legislature’s authority to amend the legislation, and because it violated the single subject rule for initiative statutes. The single-subject rule requires only voter initiatives such as Proposition 22 to cover one subject.

Proponents of Proposition 22 and the State of California appealed.

The Court of Appeal held that the Proposition did not intrude on the legislature’s authority about workers’ compensation or violate the single-subject rule. The Court did hold that the Proposition’s definition of an amendment violated the separation of powers principle in the State Constitution. However, the Court found that the unconstitutional provision could be severed from the rest of the Proposition such that Proposition 22 would still apply to covered entities. Based on the majority’s decision, Proposition 22 remains in effect for those who qualify under the law, except for the amendment provision deemed invalid. The law has been in effect pending appeal. The case may be appealed to the California Supreme Court.

For more information, please see the links below:

Castellanos v. State of California

Proposition 22

Article 1 – Article 2

What do employers need to do?
Employers should review the links provided above and should be on the lookout for any more news regarding this court case. Vensure will continue to provide more updates once more news has been received.