How Would Proposition 22 Affect Independent Contractors in California?

 Posted on September 18, 2020 in Small Business Taxes

Over the past few years, California’s employment laws have been in flux due to court decisions and legislation that have affected how workers are classified. Specifically, Assembly Bill 5 (AB5) has required some companies to classify their workers as employees rather than independent contractors, which will allow workers to receive a minimum wage and benefits. However, companies such as Uber and Lyft have fought against these requirements, and voters will be able to decide whether to implement a measure in the upcoming election to determine whether certain types of workers will receive an exemption from the requirements put in place by AB5.

NOTE: AB5 has very recently been renumbered as AB2257 and clarifies current definitions of employee versus independent contractor and enumerates a number of exemptions for certain industries. Prop 22 was placed on the ballot prior to this change in numbering and therefore refers to the old AB5. 

WATCH FOR FUTURE POSTING ON THIS WEBSITE REGARDING THE NEW AB2257.

Ballot Measure Addresses Classification of App-Based Drivers

Under AB5 (and AB2257), a worker can only be classified as an independent contractor if he or she does work that is outside a company’s usual type of business, if he or she works in an established trade that is of a similar nature to the work being performed for a company, and if the company does not directly control the work being performed. Under these requirements, drivers for rideshare services or other similar apps would not be classified as independent contractors.

In response to these restrictions, Uber, Lyft, and Doordash have funded a ballot initiative, Proposition 22, known as the App-Based Drivers as Contractors and Labor Policies Initiative. Voters will decide whether this initiative should be made into law in the November 3, 2020 election. If the measure passes, app-based drivers who provide on-demand transportation or delivery services through an online application or platform will be considered independent contractors. However, certain policies will also be put in place to address concerns about minimum wages and benefits for drivers. These include:

• A “net earnings floor” will be established to ensure that a driver receives at least 120 percent of the minimum wage for the time he or she is engaged in work, as well as 30 cents per engaged mile, with this amount being adjusted for inflation after 2021. “Engaged time” is defined as the time between when a driver accepts a ride or delivery request and when he or she completes the request.

• For drivers who work an average of at least 25 hours per week in a quarter, companies will be required to pay a healthcare subsidy of 82 percent of the average California covered (CC) health insurance premium each month. Drivers who work an average of 15 to 25 hours per week will receive a 41 percent healthcare subsidy.

• App-based drivers cannot work more than 12 hours in a 24-hour day unless they are logged off for at least 6 hours.

• Companies will be required to provide occupational accident insurance for drivers, and this coverage will function similar to workers’ compensation benefits. These insurance policies must provide at least $1 million in coverage for medical expenses and loss of income resulting from injuries experienced while a driver was using an app and available for service requests. Accidental death insurance must also be provided, with benefits to be paid to a driver’s spouse, children, or other dependents if the driver is killed while using a ride-sharing or delivery app for non-personal purposes.

Contact Our San Jose, CA Business and Independent Contractor Attorney

While Proposition 22 will only apply to app-based drivers, all California employers should be aware of how the state’s laws regarding employees and independent contractors affect them and the required state and federal tax withholding. At John D. Teter Law Offices, we can help you make sure you are compliant with state and federal laws, and we can address any tax issues related to these matters. Contact our San Jose, CA business tax lawyer today by calling our office at 408-866-1810.

Sources:

https://ballotpedia.org/California_Proposition_22,_App-Based_Drivers_as_Contractors_and_Labor_Policies_Initiative_(2020)

https://www.theverge.com/2020/8/20/21377841/uber-lyft-california-judge-block-emergency-stay-employees