Stay informed with free updates
Simply register on the Gig economy myFT Digest – delivered straight to your inbox.
The California Supreme Court has upheld a landmark ruling allowing gig economy companies to treat workers as independent contractors, in a long-awaited decision that marks a major victory for companies like Uber.
The decision by the state’s highest court is a significant blow to labor rights groups that have sought for years to overturn a controversial law known as Proposition 22.
The law allows gig economy companies to treat their workers as independent contractors rather than employees, a move that California Citizens voted decisively in favor in 2020.
Proposition 22 exempted companies from complying with a new state law that would have classified their workers as employees and instead gave workers the right to limited health benefits and a minimum income guarantee.
Uber said Thursday’s decision confirmed “the will of the nearly 10 million Californians who voted to provide historic benefits and protections to drivers, while safeguarding their independence.”
Companies like Uber and Lyft had aggressively campaigned in support of the proposal ahead of the 2020 vote, arguing that any requirement that they treat workers as employees would pose an existential threat to their businesses.
They funded much of a $200 million campaign in support of the measure, which competed with labor groups that expressed strong opposition to Proposition 22.
Companies including Uber and food delivery group DoorDash had warned that any requirement to reclassify drivers as employees would require a fundamental change to their business models.
Such a change would “incur significant additional costs” and likely result in “significant price increases for riders,” Uber said in May.
Gig economy companies also argued that such a change could have led to drivers and couriers leaving the platforms as they would have been bound to strict employment contracts and would no longer have the flexibility to work whenever they wanted.
“Drivers’ freedom to work when and how they want is now firmly enshrined in California law, ending misguided attempts to force them into an employment model they overwhelmingly don’t want,” Uber said Thursday.
Before the ruling, Jefferies analysts estimated that a repeal of Prop 22 would have resulted in additional costs for Lyft, DoorDash and Uber of about $300 million, $1 billion and $1.1 billion, respectively, in 2025. The companies could have offset about 85 percent of those additional costs in part through higher fares, they said, though that could have reduced demand.
The Supreme Court’s decision marks the final stage of a years-long challenge in California courts by individual drivers and the Service Employees International Union seeking to overturn Proposition 22.
In June, Uber and Lyft agreed to pay a total of $175 million to settle a long-running lawsuit in Massachusetts over whether drivers should be classified as employees or independent contractors. While drivers will remain independent contractors, the companies agreed to provide them with a number of benefits, including limited health care and a minimum earnings guarantee.