Proposition 22 applies only to companies operating in California and their California drivers and deliverers. But states don’t exist in a vacuum — they tend to watch what other states are doing and, if something seems like a good idea, follow suit.
Massachusetts is already deliberating whether ride-share companies should classify their drivers as employees or contract workers. As the California Supreme Court determines the future of Prop 22, Massachusetts courts are deciding whether to allow a similar initiative on the November 2024 ballot.
If you’re familiar with the United States Supreme Court ruling in South Dakota v. Wayfair, Inc. (2018) and its impact on remote sales tax, you have an idea of what Prop 22 could unleash.
The Wayfair decision overturned the physical presence requirement that prevented states from imposing a sales tax obligation on remote businesses (aka, businesses with no physical presence in the state). Within a few years, every state with a general sales tax had adopted an economic nexus law to tax remote sales.
Prop 22 could be the Wayfair for business licenses. Should California reject Prop 22 and require rideshare and delivery companies to classify their workers as employees, other states may look to do the same.
And if Prop 22 is deemed to be sound policy, California (and other states) could impose similar measures on other industries that rely on gig workers.
“Both Wayfair and Proposition 22 illustrate significant regulatory changes for marketplaces,” says George Trantas, Senior Director of Global Marketplaces at Avalara. “Being prepared for the California decision and anticipating future decisions in other states will be key to lasting success. Because the nature of marketplaces is to disrupt the status quo and the goal is to survive long term, they need to balance compliance and growth in a world of constantly changing regulations.”
