Independent Contractor Misclassification and Compliance News March 2023

By Nathan Gibson | March 31, 2023


Key Points

Lyft and Uber Drivers in California can be independent contractors.

The Kentucky Supreme Court adopted the economic realities test.

Pet care and dog walking platform Rover settles misclassification claims for $18M.

As the independent workforce continues to grow, so do the issues of worker compliance and misclassification. It is important for enterprises to remain informed about the latest laws, regulations, and developments surrounding these topics. Each month, we’ll bring you the latest news stories from around the web. 

1. California Lyft and Uber Drivers are Independent Contractor Again…. for Now

In 2020, California voters approved a ballot initiative (Proposition 22) that allowed Lyft, Uber, and other app-based drivers to be independent contractors under California state law. Proposition 22 was a reaction to California adopting a more stringent test for classifying workers as employees or independent contractors.  

In 2021, Proposition 22 was challenged as soon as it became active, and the trial court found it was unconstitutional. The trial court said that Proposition 22 violated the California state constitution because:  

(1) it conflicted with the constitution’s grant of power to the legislature to create and manage a system of workers compensation,  

(2) it violated the constitution’s requirement that each initiative be limited to a single subject; and  

(3) it impermissibly infringed on the legislature’s right under the constitution to amend the law.  

In March, a California Appeals Court overturned the trial court’s decision and said that most of Proposition 22 was constitutional. The 132-page decision discusses the relationship between an initiative petition and the legislature’s power under California’s constitution, what it means for a petition to be a single subject, whether Proposition 22 violated the single-subject requirement, what constitutes an amendment, and whether Proposition infringed on the legislature’s rights. The court concluded that most of Proposition 22 was constitutional, deciding that the restriction on amendments was not permissible.  

This means Lyft, Uber and other app-based drivers can be independent contractors in California for now. It is likely that this case will be appealed and the California Supreme Court will weigh in on these issues. 

2. Kentucky Adopts Economic Realities Test for Workers Compensation

The Kentucky Supreme Court adopted the economic realities test to determine if a worker is an employee or independent contractor for the purposes of workers compensation. A taxi driver was shot by a passenger and paralyzed, and then filed for workers compensation. The claim was denied, reversed, and appealed until it was before the Kentucky Supreme Court.  

The Kentucky Supreme Court said that it had adopted the economic realities test for wage and hour claims and had accordingly adopted it for workers compensation classification claims as well. The court noted six factors:  

  1. The permanency of the relationship between the parties,   
  2. The degree of skill required for the rendering of the services, 
  3. The worker’s investment in equipment or materials for the task,  
  4. The worker’s opportunity for profit or loss, depending upon his skill,  
  5. The degree of the alleged employer’s right to control the manner in which the work is performed, and  
  6. Whether the service rendered is an integral part of the alleged employer’s business. 

These six factors are the same six factors in the rule proposed by United States Department of Labor (DOL) in October 2022. While the DOL’s proposed rule is in the process of being promulgated, the Kentucky Supreme Court adopted the same factors and the economic realities test to determine if a worker is an employee or independent contractor for workers compensation purposes in Kentucky. 

3. Pet Care and Dog Walking Platform Rover Settles with Pet Care Providers

A Place for Rover, Inc. (Rover) connects customers with pet care providers to provide dog walking, pet sitting, and other pet care services. Pet care providers alleged that they were misclassified as independent contractors and filed a class action lawsuit in California. Rover Group, Inc., who owns A Place for Rover, settled the claims for $18 million 

For more information, check out our resources page on misclassification and compliance. If you have any questions about engagement, classification, or management of your independent workforce, we’re always here to help. 

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