In November 2020, California voters approved Proposition 22, removing businesses that operate on-demand rideshare and food delivery platforms from the scope of AB 5, California’s controversial independent contractor law. But before voters approved Proposition 22, the Attorney General of California filed suit against two such businesses, seeking injunctive relief, restitution, and penalties.
As we wrote about here, in August 2020, a California Superior Court judge issued a preliminary injunction prohibiting those businesses from treating drivers who use their platforms as independent contractors. The businesses appealed, but the California Court of Appeal affirmed the trial court’s ruling, rejecting the companies’ arguments that they could not be expected to change their business models on such short notice. The businesses then petitioned the California Supreme Court to review the Court of Appeal’s decision.
Among other things, one of the businesses argued that Proposition 22 destroyed the legal basis for the injunction, and that the injunction therefore should not stand. However, on February 10, 2021, the California Supreme Court denied the petitions for review, leaving the Court of Appeal’s decision intact.
The California Supreme Court’s decision to deny the petitions for review is a curious one in light of Proposition 22 and likely will not have any impact on the businesses’ operations going forward, as Proposition 22 carved out the businesses from the scope of the very law upon which the injunction was based. Presumably, the businesses will move the trial court to vacate the injunction based on the change in the law.
Ultimately, the California Attorney General’s lawsuit and the decisions in the case should serve as a reminder to businesses to consult with counsel to evaluate the risks associated with classifying workers as independent contractors in California.