It has been decided by an appeals court in the state of California that ride-hailing and delivery companies like Uber and Lyft are allowed to categorize their drivers as independent contractors.

Because of this judgment, these enterprises will no longer be required to comply with state laws that mandate that businesses offer certain protections and benefits to their employees. The statute, known as Proposition 22, was approved by voters and exempted drivers from collecting benefits such as paid sick leave and unemployment insurance. The verdict preserves that law. This decision is a blow to labor unions and the lawmakers in the state legislature who supported them when they approved a law in 2019 that required businesses to classify their drivers as workers. The law had been challenged by these individuals in the state legislature.

Even though the court decided to uphold Proposition 22, it also determined that drivers had the freedom to join labor unions and collectively bargain for better working conditions. This decision was made despite the fact that the court supported Proposition 22. Despite the fact that the verdict represents a victory for app-based workers, the case that challenges Proposition 22 contends that it violates the Constitution because it infringes upon fundamental rights. If the Service Employees International Union decides to file an appeal with the California Supreme Court, it is possible that the firms could face other legal challenges in the future.

The legislation that was passed in 2019 altered the definition of who is considered to be an employee and who is considered to be an independent contractor. This new definition has substantial repercussions for businesses operating in sectors that rely heavily on independent contractors. The app-based ride-hailing and delivery companies were the ones that were most negatively impacted by the regulation because their business models are predicated on drivers providing their services using their own personal automobiles.

The new rule that was supposed to go into effect in 2019 would have mandated that these businesses identify their drivers as workers and give them benefits, which would have resulted in an increase in the companies' overall costs. The firms spent a total of two hundred million dollars on a campaign to exempt themselves from the law that was passed in 2019, and their efforts were rewarded when voters adopted Proposition 22 in November 2020.