California Election Day Stakes for Ride Share Companies Just Got Higher After Appellate Ruling
November 3, 2020 has been circled on the calendars of app-based ride share and food delivery companies doing business in California for many months now. After a new ruling by the California Court of Appeal, those companies have likely gone back and circled that date a few more times in thick red ink.
On November 3, 2020, California voters will decide the fate of Proposition 22, the ballot initiative that, if passed, will allow app-based ride share and food delivery companies to treat drivers as independent contractors rather than as employees, carving them out of California’s controversial AB 5 statute. (As we explained here, AB 5 codified and expanded the “ABC” test adopted by the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court for determining whether workers in California should be classified as employees or as independent contractors.)
As we previously wrote here, in August 2020 in an action filed by the State Attorney General, a California Superior Court judge issued a temporary restraining order requiring the ride share companies to treat their drivers as employees in compliance with AB 5. The Superior Court judge ruled that the companies could not satisfy the “B” part of AB 5’s “ABC” test, which requires that the worker performs work that is outside the usual course of the hiring entity’s business in order to be treated as an independent contractor.
The ride share companies appealed. And on October 22, 2020, the California Court of Appeal affirmed the trial court’s ruling. In reaching its decision, the Court of Appeal concluded that the State had shown that it was likely to prevail on its claims against the companies, and it rejected the companies’ arguments that they could not be expected to change their business models with the “flick of a switch.”
Now Proposition 22 looms larger than ever.
Depending on reports, the ride share and food delivery companies have devoted between $110 million and $200 million to the campaign to get voters to pass Proposition 22.
Of course, there will be a tremendous irony if Proposition 22 in fact passes. It is no secret that AB 5 was aimed at ride share and food delivery companies – and it could end up being the case that most companies doing business in California must comply with the controversial statute except for the very companies at which it was aimed.
That said, should Proposition 22 pass, ride share companies may face a new and perhaps unexpected challenge posed by it — a class action complaint has been filed against one of the ride share companies, alleging that it was improperly forcing drivers to support Proposition 22.