California gig workers, like Uber drivers and Doordash food deliverers, can be classified as independent contractors, and not traditional direct employees, under California law, a state appeals court has ruled.
On March 13, a three-justice panel of the California First Appellate District Court in San Francisco ruled the voter initiative known as Proposition 22 was mostly constitutional.
In the 2-1 ruling, the majority reversed a ruling from an Alameda County Superior Court judge, who had ruled Prop 22 unconstitutionally impinged on the authority of state lawmakers to regulate labor in the state, and, in particular, improperly restricted state lawmakers from creating and governing a workers’ compensation system for certain classes of workers.
Prop 22 was passed in 2020 by more than 58% of California voters in a win for app-based rideshare and delivery service operators, like Uber, Lyft, Doordash and Grubhub. The proposition came in response to the state law known as AB5, a union-backed measure that would redefine so-called gig workers as direct employees.
That would have placed a host of new requirements on the app-based companies, including workers’ comp, health insurance, paid time off for workers, and more.
App operators claimed it would massively burden their entire business model, potentially putting some of them out of business, or at least forcing them to radically alter their customer experiences.
Under Prop 22, app-based drivers would still be eligible for some protections, including minimum wage and stipends for health care.
But Prop 22 still secured a big economic win for the app-based companies.
After Prop 22 passed, unions and others immediately sued, claiming the California proposition conflicted with California’s state constitution and should be invalidated.
Alameda County Superior Court Judge Frank Roesch agreed, and struck down Prop 22 in 2021.
On appeal, a majority of the First District Appellate panel said Roesch got the law wrong.
In the decision, Justice Tracie Brown, writing for the majority, said precedent in the California Supreme Court decision known as Independent Energy Producers Association v McPherson established that a vote of the people through the initiative process is just as constitutionally valid as an act of the state legislature.
This means that the same powers invested in the state legislature by Article XIV, Section 4, of the California state constitution to create and govern the state’s workers’ comp system are also invested in the people, through the referendum process.
“Rather than read Article XIV, Section 4, as conferring plenary, unlimited power on the Legislature and only the Legislature, McPherson requires that we read article XIV, section 4 as though it said, ‘The Legislature or the electorate acting through the initiative power are hereby expressly vested with plenary power, unlimited by any provision of this constitution, to create, and enforce a complete system of workers’ compensation…,’” Brown wrote.
Further, the justices found voters, through the initiative process, just as state lawmakers, are within their constitutional power to exclude specific classes or types of workers – in this case, app-based delivery drivers under Prop 22 – from the state’s workers’ comp system.
Using this reasoning, the justices determined Judge Roesch had erred in determining Prop 22 conflicted with the California state constitution.
Justices further rejected the plaintiffs’ contentions that Prop 22 impermissibly covered more than one subject, which they contended meant it violates the so-called single subject rule within the state constitution. That provision forbids California voters from voting on an initiative that would cover more than one single subject.
Justices, however, determined Prop 22 met the single subject rule, because it deals with the state’s ability to regulate the relationship between the drivers and the app operators through which they find work.
In the ruling, justices sided with the plaintiffs on the question of whether certain provisions of Prop 22 would illegally limit the powers of the legislature and the courts to amend or limit the proposition going forward. Notably, the justices upheld Judge Roesch’s holding that Prop 22 would illegally restrict drivers from collective bargaining.
Justices said, even as independent contractors, the drivers should retain the right to collectively bargain, if they wish.
But the justices said the bulk of Prop 22 would still survive, allowing the app-based companies to keep the bulk of their political win, as well.
The state of California, which defended Prop 22, was represented by the California Attorney General’s office.
The app-based operators were represented by attorneys from the firms of O’Melveny & Myers.
Plaintiffs were represented by the firm of Olson Remcho and by attorneys with the Service Employees International Union.