California Court reviews law on app-based drivers' classification as contractors

California's top-court on Tuesday deliberated whether voters had the authority to classify app-based drivers for companies like Uber and Lyft as independent contractors under Proposition 22 (Prop 22).

The 2020 ballot measure, passed by nearly 60 per cent of California voters, exempts these drivers from a 2019 state law that mandates stricter employee classifications, entitling workers to greater benefits.

The court heard arguments from the Service Employees International Union (SEIU) and four drivers who contend that Prop 22 is unconstitutional.

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Prop 22 permits app-based transportation services to consider drivers as independent contractors, provided they earn at least 120 per cent of the minimum wage while on a ride and receive expense reimbursements and health insurance subsidies.

This remains a critical issue for the ride-service industry as the classification has a major impact on costs.

Employees, unlike contractors, are entitled to benefits such as minimum wage, overtime pay, and expense reimbursements, potentially increasing costs by up to 30 per cent according to studies.

Uber, Lyft, and other companies spent over $200 million campaigning for Prop 22, arguing that without it, the increased expenses could drive them out of California.

The lawsuit's core question is whether Prop 22 improperly limits the legislature’s authority to regulate workers' compensation, a power that SEIU argues should be exclusive.

However, a lower appeals court had previously rejected this argument, indicating that Prop 22 does not improperly constrain legislative power.

During Tuesday's session, justices examined whether the California constitution grants exclusive regulatory power to the legislature or requires it to share this power with voters.

Justice Goodwin Liu noted that Prop 22’s provisions apply specifically to labour code classifications, suggesting the legislature could still pass laws to extend benefits to app-based drivers if it chose to do so.

Scott Kronland, representing SEIU, argued that a clause in Prop 22 restricting amendments makes it difficult for lawmakers to counteract the measure.

Meanwhile, some justices expressed concern that allowing voters such control could undermine the legislature's absolute power, potentially leading to the elimination of the workers' compensation system, a situation described by Justice Joshua Groban as turning "plenary" power into something less absolute.

This California case is part of a larger national debate on gig worker classification.

Recently, Minnesota legislators passed a law setting new minimum wage standards for gig drivers, prompting Uber and Lyft to threaten to cease operations in Minneapolis.

In Massachusetts, the state’s top court is considering competing ballot proposals regarding driver classification, and a trial has begun over the state attorney general's lawsuit accusing Uber and Lyft of misclassifying drivers to avoid providing employee benefits.

The California Court is expected to issue a ruling within 90 days.

(With inputs from Reuters)