Independent Contractor Misclassification and Compliance News July 2024

As the independent workforce continues to grow, so do the issues of worker compliance and misclassification. It is important for enterprises to remain informed about the latest laws, regulations, and developments surrounding these topics. Each month, we bring you the latest news stories from around the web.

California Supreme Court Rejects Challenges to Proposition 22—Drivers Can Be Classified as Independent Contractors

The California Supreme Court rejected challenges to Proposition 22—the 2020 ballot initiative that passed overwhelmingly and allowed drivers to work as independent contractors. This ruling will allow Uber and Lyft to engage with drivers as independent contractors.

The history of this case goes back to 2018 when the California Supreme Court adopted the ABC test for classifying a worker as an independent contractor. This test requires an employer to show:

(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; and

(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and

(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity. 

The California legislature made the ABC test the law in 2019. In response to the Supreme Court case and the new law, Uber, Lyft, and others worked to put a question on the ballot (Proposition 22) that would allow drivers to work as independent contractors.

Voters passed Proposition 22 with almost 60% in favor of it. Immediately, Proposition 22 was challenged—not on whether drivers could be independent contractors—but on whether Proposition 22 violated California’s constitution. (see Independent Contractor Misclassification and Compliance News August 2021).

A lower court first agreed with the challengers. An appellate court said Proposition 22 did not violate the state’s constitution (see Independent Contractor Misclassification and Compliance News March 2023). Upon further appeal, the California Supreme Court upheld the appellate court decision and said that Proposition 22 was not prohibited by the state’s constitution.

Uber applauded the decision saying that it affirmed “the will of the nearly 10 million Californians who voted to deliver historic benefits and protections to drivers, while protecting their independence.”

Massachusetts has a Historic Settlement with Uber and Lyft

Massachusetts Attorney General Andrea Joy Campbell announced a historic settlement with Uber and Lyft in which Uber and Lyft drivers are permitted to continue to be independent contractors while receiving a wide range of benefits.

This settlement resolves a lawsuit brought by Massachusetts Attorney General Maura Healey in 2020 seeking a court judgment that Uber and Lyft drivers were employees and not independent contractors. The settlement requires Uber to pay $148 million and Lyft to pay $27 million, most of which will be distributed to drivers. It also requires Uber and Lyft to pay drivers a minimum of $32.50 per hour for time traveling to pick up riders and transport them to their destination.

For the first time anywhere, Uber and Lyft will allow drivers to pool their hours driving for the two companies to obtain access to a health insurance stipend. Anyone who drives for more than 15 hours per week—for either or both companies—will be able to earn a health insurance stipend to pay for a plan on Massachusetts’ state-based health insurance marketplace. Drivers will also earn one hour of sick pay for every 30 hours worked up to a maximum of 40 hours per year. The settlement also provides other benefits for drivers.

In return, Uber and Lyft are permitted to continue to classify drivers as independent contractors. This is no small feat in Massachusetts which has the ABC test that says a worker is an employee unless:

(A) the individual is free from control both under his contract for the performance of service and in fact; and 

(B) the service is performed outside the usual course of the business of the employer; and, 

(C) the individual is customarily engaged in an independently established trade, occupation, profession, or business  

This is a historic settlement because of the range of benefits—including a minimum wage for traveling to pick up and transport passengers—provided to drivers. With this settlement, drivers have access to new benefits while allowing them to work as independent contractors.  

For more information, check out our resources page on misclassification and compliance. If you have any questions about engagement, classification, or management of your independent workforce, we’re always here to help.