On March 13, 2023, in Castellanos v. State of California, the California Court of Appeal handed down a pink unicorn decision in favor of app-based driver and delivery businesses that permits them to properly classify workers as independent contractors. In so doing, it breathed life back into Proposition 22 (Bus. & Prof. Code sections 7448-7467) and California’s gig economy.
Proposition 22’s Roots In AB5
In 2019, the California Legislature codified the holding in Dynamex by enacting Assembly Bill No. 5 (“AB5”), which established a test for distinguishing between employees and independent contractors. The net effect of AB5 is that workers are presumed to be employees with few narrow and complicated exceptions. Consequently, AB5 made it nearly impossible for workers and businesses of any kind to lawfully engage with each other on an independent contractor basis and for businesses to retain independent contractors without incurring the risk of, at best, being placed into an arduous audit process or, at worst, being deemed to have improperly classified its workers, and all of the repercussions associated with that finding. AB5 has, not surprisingly, been the subject of much litigation in the time since its original enactment.