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The Battle for Independent Contractor Status in California Continues

For certain employers whose business model includes the use of independent contractors in California, the past four years has been a confusing time.  They have been confronted with a policy whiplash which could determine whether their businesses will be able to survive, let alone thrive, in an alternating hostile and accommodating policy environment.  For them, there is good news and bad news.

The good news is that a decision by a California appellate court last week found that, in general, California’s gig economy still has life.  The bad news is that the changing policy environment may not be over.

First, a brief review of the situation.  In 2016, the California Supreme Court established a new doctrine that severely limited the use of independent contractors.  The multi-part test it announced required that workers who were used to carry out the basic purpose of their employers had to be treated as employees, thus converting in one fell swoop Uber, Lyft, Doordash and other drivers, contract attorneys and musicians, artists and scores of others in numerous professions from contractors to employees (the Dynamex case).  This was followed by the California Legislature codifying the decision in AB 5 in 2019.  Meanwhile, vigorous lobbying on behalf of numerous influential groups successfully created many carve-outs to the doctrine.  By the end of 2019, therefore, there existed in California a very anti-business law against a wide swath of businesses but with a significant number of exceptions for groups with sufficient juice in Sacramento.

In 2020, however, Proposition 22 was passed by the voters.  It was funded by the ride share and other gig-based companies, and reversed Dynamex and AB 5, although it also guaranteed certain benefits to the drivers.  Soon thereafter, some gig drivers and the SEIU brought a lawsuit to overturn Proposition 22, arguing that for a variety of reasons it was unconstitutional.  In 2021, a Superior Court judge agreed and ruled that it was unconstitutional (the Castellanos case).  That case was then appealed.

The good news – on March 13th, the appellate court ruled that most of Proposition 22 is indeed constitutional.  The right to classify workers as independent contractors has therefore been restored, at least for now.

Now the bad news.  The decision will undoubtedly be appealed to the California Supreme Court, which of course was the originator of this mess in the first place.  The history of this saga makes any prediction of the final outcome very difficult to predict, and the case could conceivably be appealed to the United State Supreme Court.  But for now at least, the gig economy is alive again in California.

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