3 MIN READ
Published 05/21/2021
In the most expensive ballot initiative in the state’s history, California voters approved Proposition 22 last November, making it easier for employers to classify gig workers as independent contractors. However, Prop 22 advocates, who put forth more than $100 million in support of the measure, are cautious in their celebration.
As recently as February 10, 2021, the California Supreme Court declined to decide whether Prop 22 trumps pending litigation prior to the measure’s December 16, 2020, effective date. In addition, a pending constitutional challenge alleges the newly approved measure is invalid because it usurps the plenary power of the legislature and eliminates workers’ legally guaranteed rights. This challenge[i] by Prop 22 opponents is currently pending before a lower court in California and is expected to reach the state’s supreme court.
Biden administration scraps prior rules that favored workers’ independence
A February report from Bloomberg Law signaled that the U.S. Department of Labor (DOL) is retreating from the Trump administration’s opinion that gig workers are exempt from wage protections because they’re independent contractors[ii]. The DOL’s Wage and Hour Administration recently scrapped a pair of interpretive letters from 2019, including one that platform-based companies such as Uber and Instacart could have used as a legal defense against claims that their drivers are employees subject to the Fair Labor Standards Act’s (FLSA’s) minimum wage and overtime provisions.
With the Biden administration more closely scrutinizing whether these app-based businesses can continue to treat their workforce of service providers as independent contractors, employers should be prepared for additional screening measures when classifying workers as independent contractors during the current administration.
U.K.’s top court rules that Uber drivers are workers in a blow to gig economy
Uber’s arguments that its drivers are independent contractors and eligible for classification as such fell on deaf ears in a recent unanimous ruling by the U.K.’s Supreme Court[iii] — ending a legal battle that began in 2016 and has created an existential threat to Uber’s business model in the United Kingdom.
The firm contends that the U.K. Court’s ruling is limited to the drivers that were governed by the contract that existed in 2016. In the U.S., Uber plans to create and advocate for a hybrid model of classifying workers that enjoys the benefits of independence and simultaneously concedes certain worker benefits and protections. The jury is still out on whether and how the hybrid/third way might look and work for the gig economy.
Conclusion
Although Prop 22 was approved by California voters last November, there is no end in sight for the debate on classifying gig workers as independent contractors. Pending decisions in the lower courts, as well as the California and U.K. Supreme Courts, app-based businesses like Uber and Lyft do not have a clear path forward regarding workers’ rights and classifications.
The sheer magnitude and increasing influence wielded by this growing sector of the gig economy will likely lead to a hybrid classification scheme for gig workers that preserves some level of independence and includes certain benefits that are currently reserved for employees.
Related insights
This website is general in nature, and is provided as a courtesy to you. Information is accurate to the best of Liberty Mutual’s knowledge, but companies and individuals should not rely on it to prevent and mitigate all risks as an explanation of coverage or benefits under an insurance policy. Consult your professional advisor regarding your particular facts and circumstance. By citing external authorities or linking to other websites, Liberty Mutual is not endorsing them.
