File your 2023 taxes before the IRS deadline. 3 days left” ⏰

Turn your expenses into deductions
Avatar Image
Big Uber and Lyft News About Independent Contractors

On Monday, March 13, this year, a state appeals court in California ruled that app-based companies that provide rideshare and delivery driver services will be allowed to continue to treat their drivers in that state as Uber independent contractors and Lyft independent contractors, rather than Uber employees and Lyft employees.

The decision lets tech giants like Uber, Lyft and DoorDash bypass certain state laws that mandate protections for workers and employee benefits by supporting Proposition 22, which was approved by California voters in 2020. When it comes to Uber employees or Lyft employees who work at the companies' headquarters, for example, these state laws must be upheld, but not so for independent contractors who do work for them.

What is Proposition 22?

59% of California voters passed this ballot initiative that allowed transportation and delivery companies that function on app-based platforms to be exempt from legislation by allowing them to classify Uber rideshare drivers, for example, as independent contractors. This meant that these ride share companies are not required to provide employee benefits such as paid sick leave, extra pay for overtime work, health insurance provided by the employer and unemployment insurance.

This has essentially been Uber's policy and Lyft's policy, as well as that of other companies from the beginning, but this Uber/Lyft news solidifies Prop 22.

What Prop 22 does provide drivers is:

  • 120% of the California minimum wage for every hour they spend transporting passengers or deliveries, though this does not include time spent waiting.
  • $.30 per mile their driver expenses for every hour they spend with a passenger or delivery in the car.
  • A stipend for health insurance, if the Uber or Lyft driver averages more than 15 hours driving in a week.
  • Medical costs and lost income, to an extent, provided by the ride share companies in the event that the driver is hurt while they are transporting a passenger or making a delivery, or while they are waiting for a passenger or a delivery.
  • Prohibition of discrimination in the workplace and the requirement for ride share companies to develop anti-sexual harassment policies, as well as to do background checks on drivers and require drivers to undergo safety training.
An infographic showing what California Proposition 22 mandates that rideshare companies provide to Uber rideshare drivers and Lyft rideshare drivers.

Proposition 22 is not only for delivery drivers and those who drive for ride share companies, it applies to many other industries. But it had by far the biggest impact on these app-based ride-hailing and delivery companies, such as Uber, Lyft and Doordash because their business model is built on contracting with drivers who use their own cars to provide customers with rides and to deliver goods.

In 2021, a lower court in California ruled that Proposition 22 was illegal, but this recent decision overturns that one.

The Uber/Lyft news and labor unions

Monday's ruling defeats the efforts of labor unions, who advocated for companies like Uber and Lyft to treat Uber ride share drivers and Lyft ride share drivers as employees. This would have changed Uber policy and Lyft policy regarding drivers by force, giving all ride-hail drivers and other gig-economy workers the classification of "employee."

But this decision meant that ride-hail and delivery companies were able to prove that Uber ride share workers, for example, do not receive direction or otherwise controlled by the companies while they are working. The companies were also able to show that drivers' work is not the core business of the company, that each worker has their own business doing that same kind of work, and their work for a given company is just a part of that – all of which makes them technically Uber independent contractors, Lyft independent contractors or independent contractor delivery drivers.

 An infographic showing the definition of an Uber independent contractor or a worker for any rideshare companies, according to California Proposition 22.

What labor unions did get out of the decision is the ability for drivers to join labor unions. Ride-hail and delivery companies cannot prevent drivers from collectively bargaining for better working conditions and hold hold companies accountable for providing workers with what they are entitled to according to the legislation.

FlyFin CPA Team

FlyFin CPA Team

With a combined 150 years of experience, FlyFin's CPA tax team includes tax CPAs, IRS Enrolled Agents and other tax professionals, offering users the most comprehensive tax advice and preparation.

Was this tip useful?