If your organization has employees or independent contractors that work in the state of California, you have to pay close attention to labor laws. On November 3, voters will decide whether app-based drivers and delivery workers will be classified as employees or independent contractors.
Assembly Bill 5 and California employers
The background of Proposition 22 is a controversial labor law that went into effect in January of 2020: California Assembly Bill 5 (AB5). This bill expanded the definition of employee to include many workers previously classified as independent contractors. Suddenly the pressure was on Uber, Lyft, Grubhub, DoorDash and other app-based driving and delivery services to reclassify their workers as employees rather than as contractors.
This labor code change would require these companies to supply worker's compensation, unemployment coverage, and reimbursement of vehicle expenses, along with other benefits guaranteed to employees under the California labor code. No surprise, these companies have fought back in the courts, winning a temporary stay until November, when voters will decide the matter.
But it's not just the companies themselves that have resisted AB5; the majority of drivers surveyed have said they prefer to remain independent contractors who can set their own hours and be their own boss. Under the federal tax code, they are entitled to significant tax deductions for their mileage and other vehicle expenses. But if classified as employees, they no longer get those tax deductions; instead their employers would receive those deductions after reimbursing the drivers for their expenses.
Voting "Yes" or "No" on California Proposition 22
From Ballotpedia.org, the ballot title of Proposition 22 reads:
"Exempts App-Based Transportation and Delivery Companies from Providing Employee Benefits to Certain Drivers."
The ballot summary reads:
Classifies drivers for app-based transportation (rideshare) and delivery companies as “independent contractors,” not “employees,” unless company: sets drivers’ hours, requires acceptance of specific ride and delivery requests, or restricts working for other companies.
Independent contractors are not covered by various state employment laws—including minimum wage, overtime, unemployment insurance, and workers’ compensation.
Instead, independent-contractor drivers would be entitled to other compensation—including minimum earnings, healthcare subsidies, and vehicle insurance.
Restricts certain local regulation of app-based drivers.
A "Yes" vote on Prop 22 would exempt drivers from Uber, Lyft, Grubhub, etc. from being classified as employees and allow them to remain classified as independent contractors. A "No" vote would require the current ABC test instituted by Assembly Bill 5 to apply to these workers, with the result that they would be classified as employees.
Opponents of Prop 22 argue that it is unjust to treat these workers as contractors, leaving them without a safety net in an unstable economy. At the same time, many of these workers continue to value their independence over the benefits that come with employment.
Implications of California AB5 and Prop 22 for business owners
Because California's labor code, in Section 2802a, requires that employers reimburse employees for all work-related expenses, including business mileage and the expenses of owning a vehicle used for work, it is very important to know whether your workers will be classified as employees or contractors going forward.
If your organization has employees who use a personal vehicle on behalf of the company, failure to appropriately reimburse them for vehicle expenses could result in a lawsuit. For help determining whether your car allowance or mileage reimbursement program is labor code compliant, use the green calculator below. To get help setting up a labor-code compliant reimbursement program, contact mBurse today or visit our professional services page.