California Supreme Court Ends Legal Snafu Over Gig Drivers – Upholds Prop. 22
California Supreme Court Ends Legal Snafu Over Gig Drivers – Upholds Prop. 22 – California Globe
In November 2020, California voters overwhelmingly passed Proposition 22, to exempt all rideshare drivers from being classified as employees.
But labor unions and some drivers sued to halt the proposition.
Thursday, California’s Supreme Court upheld Proposition 22, allowing drivers at Uber, Lyft, and other ride share companies to operate as independent contractors, rather than employees.
Prop. 22 was initiated to exempt all rideshare workers from being classified as employees because of the very controversial AB 5, the labor union-funded contractor reclassification law that went into effect in California in January 2020.
AB 5, authored by Democrat Assemblywoman Lorena Gonzalez (who left the CA Legislature early to head up the California Labor Federation), completely redefined independent contractors in California, as well as greatly reducing the number of contractors in the state by creating an “ABC test” that instead made them employees, or put them out of work.
AB 5 was passed by Democrats in the California Legislature and signed into law in 2019 by Gov. Gavin Newsom.
The stated intent of AB 5 was to force “Gig Economy” rideshare companies to reclassify their drivers as employees, rather than allowing them to work as independent contractors, which would have destroyed the company’s very business model, and made the drivers vulnerable to unionization, which really was the end goal.
AB5 didn’t just target California’s “gig economy;” it outlawed all independent contractors with few exceptions – including independent truckers, traveling physicians and nurses, actors, musicians, and many more independent contractors.
Rideshare and delivery companies Uber, Lyft, DoorDash, Postmates, and Instacart spent more than $200 million dollars on the campaign to pass Prop. 22, saying passage of the initiative was the only thing that could keep many of the companies in California, with the heightened costs for both the company and consumer should they have had to classify drivers as full employees.
In August 2020, the rideshare companies were days away from halting all California service because of a court order, which led to appeals and eventually the California Supreme Court.
The California Supreme Court just upheld Proposition 22 to allow Uber, Lyft and other gig employees to classify drivers for their ride-hailing and delivery services as independent contractors rather than as employees, the LA Times reported.
The unanimous ruling rejected claims brought by a group of drivers and a major labor union that the law is unconstitutional because it interferes with lawmakers’ authority over matters dealing with workers’ compensation.
In the SEIU lawsuit, the union argued that the ballot initiative unconstitutionally limited the power of California to implement a compensation program, unconstitutionally limited the passage of workers’ rights legislation, and violated the constitution of California by not addressing a single subject.
This was a crisis created by the California Legislature and Governor, and needed to be reversed by the Legislature and Governor. But they did not.
The problem with AB 5 is that the bill was based on the legally flawed California Supreme Court Dynamex decision.
In 2018, the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles dealt a blow to independent contractors. The Court ruled that the Dynamex delivery drivers were employees, rejecting its own prior test for determining whether workers should be classified as either employees or independent contractors,” Forbes reported.
According to many legal analysts, what the Court did was legislate from the bench by adopting a new rule for the narrow purpose of interpreting California’s Industrial Welfare Commission’s wage orders.
Notably, Supreme Court Justice Goodwin H. Liu wrote in the decision:
“the Legislature has made a number of exceptions to the general eligibility rule in order to extend workers’ compensation to nonemployees;” and
“We have no need in this case to decide the applicability of our reasoning in County of Los Angeles to Proposition 22 or to determine the extent to which article XIV, section 4 may limit the initiative power. We reserve these issues until we are presented with an actual challenge to an act of the Legislature providing workers’ compensation to app-based drivers;”and
“Plaintiffs assert in their reply and answer to amicus curiae briefs that the Legislature has already extended workers’ compensation benefits to app-based drivers through Assembly Bill No. 1766 which was enacted after Proposition 22. They point to a provision of Assembly Bill 1766 that prospectively revised the definition of “employee” in Labor Code section 3351, subdivision (i) to include “any individual who is an employee pursuant to section 2775.” They say that by “updat[ing] an obsolete cross-reference” in this provision, the Legislature “reaffirm[ed] that ‘any individual who is an employee pursuant to [Labor Code] Section 2775’ (which codifies the ABC test) is covered by the workers’ compensation system.” But plaintiffs do not cite any authority for their claim that this updated cross-reference effectively recodifies the ABC test for app-based drivers, nor do they demonstrate that their theory has ever been tested in litigation. At this juncture, it is not clear that “there is already a direct and irreconcilable conflict between section 7451 and a statute adopted by the Legislature after Proposition 22 was enacted,” as plaintiffs contend. In any event, that question is not before us, and we express no view on it.”
It will be interesting to see any further challenges to Proposition 22. Some legal analysts say that the California Supreme Court created this 5-year employment mess with their flawed Dynamex decision, and effectively just started cleaning up that confusing mess.
Summary of Court Decision
- - The court upheld Business and Professions Code section 7451, enacted by Proposition 22, which classifies app-based drivers as independent contractors rather than employees under certain conditions.
- - The court ruled that section 7451 does not conflict with Article XIV, Section 4 of the California Constitution, which gives the Legislature "plenary power" over workers' compensation laws.
- - The court found that Article XIV, Section 4 does not give the Legislature exclusive power over workers' compensation, and does not preclude the people from using the initiative process to legislate on workers' compensation matters.
- - The court declined to rule on whether other provisions of Proposition 22 improperly limit the Legislature's ability to enact future workers' compensation laws for app-based drivers, saying those issues were not directly presented in this case.
- - The court affirmed the Court of Appeal's judgment upholding section 7451, while leaving open questions about potential conflicts between other parts of Proposition 22 and the Legislature's constitutional authority over workers' compensation.
- - The decision preserves the core of Proposition 22's classification of app-based drivers as independent contractors, while leaving room for future challenges to other aspects of the law.
Uber, Lyft, DoorDash workers remain contractors due to California Supreme Court ruling
In summary
State’s highest court refuses to overturn voter-backed Prop. 22, a law written by the gig industry. The ruling means gig workers will remain independent contractors.
In a major victory for gig-work companies, the California Supreme Court today upheld a voter-approved law that allows Uber and other app makers to treat their drivers and delivery workers as independent contractors instead of employees.
The decision on Proposition 22 was unanimous. Approved by 58% of California voters in 2020 and enacted the same year, Prop. 22 gave app-based gig workers some benefits but not full worker protections because the ballot initiative — which gig companies spent more than $200 million to pass — ensures they are not considered employees.
More than 1.4 million Californians are app-based gig workers for companies such as Uber, Lyft, DoorDash and Instacart, according to the industry’s latest estimates.
The court was not considering the pros and cons of the gig economy. During oral arguments in May in San Francisco, justices zeroed in on whether Prop. 22 was incompatible with California law, which gives the Legislature responsibility over a complete workers’ compensation system. By declaring gig workers independent contractors, Prop 22 made them ineligible for workers’ comp benefits. SEIU California, the Service Employees International Union that had sought to overturn the law on behalf of four gig workers, argued that this made the law unconstitutional.
The law about the Legislature and worker’s comp “does not preclude the electorate from exercising its initiative power to legislate on matters affecting workers’ compensation,” Justice Goodwin Liu wrote in today’s ruling.
Liu also wrote that a section of Prop. 22 “does not itself restrict the Legislature’s authority to enact workers’ compensation legislation.”
Scott Kronland, the attorney who argued the case on behalf of SEIU California, told CalMatters that the ruling “expressly leaves open the possibility of legislation that provides worker’s compensation benefits for app drivers.”
Still, advocates for gig workers said the ruling was a blow.
“This is a really tragic outcome,” said Veena Dubal, a law professor at UC Irvine who focuses on labor and inequality. “But it’s not the end of the road.” Dubal speculated that labor advocates could put together a proposition of their own, or municipalities and the state could adopt ordinances and laws that are more worker-friendly — such as making it illegal to set different wages for similar work based on algorithmic formulas.
Gig companies backed Prop. 22 in 2020 to win themselves an exclusion from a new state law known as Assembly Bill 5, which would have upended their business models by requiring them to consider their drivers and delivery workers as employees. Last month, Uber lost a legal battle to overturn AB 5 — meaning only Prop. 22 stood in the way of forcing ride-hailing and delivery app companies to comply with it.
William Gould, professor emeritus at Stanford Law School and a former chairman of the National Labor Relations Board, called the ruling “an enormous setback for workers who are marginalized.” Gould added that “companies showed this is the way to repeal what the Legislature does: using an expensive, well-financed campaign to deny worker rights.”
Under Prop. 22, gig workers are promised guaranteed minimum earnings of 120% of minimum wage, health care stipends, occupational accident insurance and accidental death insurance. Many of the benefits come with stipulations:
- The guaranteed earnings are based on time on a “gig” and don’t include time workers spend waiting for a ride or delivery.
- The health care stipends are for certain eligible workers only, excluding those who qualify for public assistance, including Medi-Cal.
- The occupational accident insurance has a $1 million limit
- Gig workers are reimbursed for their mileage, although at less than the IRS-mandated rate employees receive — currently 35 cents a mile vs. 67 cents a mile. But this amount is included in the minimum earnings guarantee — it is not in addition to it.
- Because Prop. 22 will stand, app-based platform workers will continue to be ineligible for benefits such as sick pay, a minimum wage for all time worked, unemployment insurance and more.
Representatives of Uber, DoorDash and Instacart sent statements hailing the decision as a win for gig workers and for California voters.
Molly Weedn, spokesperson for the gig industry group Protect App-Based Drivers + Services, called the ruling “an overwhelming victory for voters’ rights and the integrity of our state’s initiative system.”
A driver in Coachella Valley who participated in the industry group’s press conference today, Stephanie Whitfield, said she has relied on her income from driving to supplement her substitute-teaching income, especially after having major back surgery.
“I needed something I could work around my doctor’s appointments,” Whitfield said. “App-based driving has been invaluable to me.”
But other gig workers said Prop. 22 has not helped them much. They said their wages have stayed low and their benefits fall short of what they want.
Sergio Avedian, a ride-hailing driver, podcaster and contributor at the Rideshare Guy, a popular gig-work blog, said the ruling means “the hunger games continue… it means (only) a small percentage of drivers receive (Prop. 22) benefits due to restrictions.”
Another driver, Alejandro Partida, said during a press conference by Los Angeles-based Rideshare Drivers United: “We’ve seen how (Prop 22) it harms workers… who are mostly immigrants and people of color. (We) are entitled to worker protections just like other employees.”
Gig worker advocates vowed not to give up.
“We’ll continue to fight until we have justice for drivers and all workers,” Nicole Moore, president of Los Angeles-based Rideshare Drivers United, told CalMatters. Moore added that this ruling could mean “app companies are coming for all of our jobs, whether it’s in health care, construction, entertainment.”
Moore said during the press conference: “We need the help of legislators, the attorney general, of cities to find a creative pathway to ensure that drivers have adequate pay for our families.”
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