Somewhere in Los Angeles, a driver is sitting in a parking lot in between rides, phone resting on the dashboard, doing the math that gig workers do all the time but seldom share with researchers: how much did the last few hours really cost after gas, after the car’s wear and tear, after the time spent waiting with the app open and no passengers in the seat?
Frequently, the response is smaller than what is shown on the summary screen. It occasionally falls short of the minimum wage. The question of whether these drivers are independent contractors or employees, which California courts have been debating for years, will determine if that discrepancy is a legal issue or a result of the market. When the solution is eventually found, it will have an impact on many more people than just the ones who asked.
| Category | Details |
|---|---|
| Core Legal Question | Whether Lyft and Uber drivers are employees or independent contractors — and whether companies owe back pay for years of alleged misclassification |
| Key Law | California AB 5 — codified the “ABC test” for worker classification, making it harder to classify workers as independent contractors |
| Proposition 22 | Passed November 2020 — allows rideshare companies to classify drivers as independent contractors with limited benefits; backed by $200M+ in industry spending |
| What Reclassification Would Mean | Minimum wage guarantees, expense reimbursement, overtime pay, unemployment benefits, and workers’ compensation for affected drivers |
| Financial Exposure | Potential billions in back pay covering the period before Proposition 22 — exact figures disputed and still being litigated |
| National Scope | California precedent influences gig economy labor standards across the U.S. — other states watching closely |
| Affected Workforce | Approximately 59 million Americans performed some gig work in 2023 — classification status affects their access to labor protections |
| Business Model Risk | Reclassifying drivers as employees would substantially raise operating costs for Lyft and Uber — potentially changing pricing and availability across the platforms |
| Current Status | Litigation ongoing — Prop 22 itself was partially struck down by a California court and is still working through appeals |
| Federal Context | DOL rule on independent contractor classification at Department of Labor — federal standards also shifting |
The ABC test, a three-part standard that makes it much more difficult for businesses to classify workers as independent contractors rather than employees, was codified in California’s AB 5, which was passed in 2019. This is where the legal dispute over Lyft and Uber’s classification of their drivers originated.
A worker is assumed to be an employee under AB 5 until the hiring company can show that the worker truly controls their work, operates independently of the company’s core business, and sets their own terms. In practically every way, rideshare companies failed that criteria. They are in the business of transporting people. People are driven by their drivers. Making the connection is not hard.
Proposition 22 was the industry’s response. After spending about $200 million on one of the most costly ballot campaigns in California’s history, Uber, Lyft, DoorDash, and their allies were able to secure a measure in November 2020 that created a third category: gig workers who are independent contractors but receive certain limited benefits like a healthcare stipend and a minimum earnings guarantee.
In essence, the businesses had purchased a carve-out from the law that they were unable to successfully challenge in court. Prop 22 was approved. It continued to lead to lawsuits. Parts of Prop 22 itself were later overturned by a California court, and the appeal process is currently ongoing. What drivers are entitled for the time prior to Prop 22’s implementation is the back-pay issue, which is still open and unresolved.
This lawsuit has national ramifications that go far beyond ridesharing. Federal labor statistics show that 59 million Americans engaged in gig work in 2023. Due to California’s status as the nation’s largest labor market and the concentration of the biggest gig economy enterprises there, the classification framework established by California courts has continuously influenced how other states and federal agencies handle the same topic.
Tightening federal rules in a manner similar to AB 5, the Department of Labor has been advancing its own independent contractor regulation through the regulatory process. There are several simultaneous sources of pressure.
It’s difficult to ignore the fact that the business model under litigation is successful because it shifts the costs of employment, such as insurance, maintenance, downtime, and flexible scheduling, onto individual employees rather than the corporation profiting from their labor. The legality of that distribution has been disputed for many years. Even when the courts won’t address it, the litigation puts the issue of equity into the public eye. The case is still pending. While it does, the math for the driver in the parking lot remains unchanged.
