Prop 22 retroactivity ruling highlights ballot measure strategy

On April 9, U.S. District Judge Edward M. Chen reversed an earlier finding that Proposition 22, the California ballot measure exempting app-based drivers from the Assembly Bill 5 worker classification scheme, did not apply retroactively. On reconsideration of his previous decision in James v. Uber Technologies, Inc., Judge Chen appeared to agree with Uber that he had issued that ruling prematurely. 3:19-cv-06462-EMC (N.D. Cal., filed Oct. 8, 2019).

In January, while certifying a class of Uber drivers who claimed that they had been misclassified as independent contractors, Judge Chen ruled that Prop. 22 was not retroactive. His April decision tables the question of retroactivity until after class certification in the drivers' 2019 lawsuit has been completed. If the earlier finding of no retroactivity is overturned, it would represent an enormous victory for Uber and other companies covered by Prop. 22. It would also provide them with a roadmap for future state ballot battles in other parts of the country.

But the question of Prop. 22 retroactivity should never have come up. The ballot measure, codified in Business and Professions Code Sections 7448-7467 effective Dec. 16, 2020, includes neither the word "retroactive" nor "repeal." And the voter guide for Prop. 22 makes no mention of either abolishing or repealing the ABC test. (Full disclosure: I represent a class of Uber drivers in a separate lawsuit (Nicolas v. Uber Technologies, Inc.), dealing with the same issue.)

Notwithstanding the absence of express retroactivity language in the law, Uber contends that Prop. 22 repealed or abolished the ABC test by implication. This is wishful thinking. Court precedent makes clear that "all presumptions are against a repeal by implication." Garcia v. McCutchen, 16 Cal. 4th 469, 476-77 (1997). "Absent an express declaration of legislative intent, courts will find an implied repeal 'only when there is no rational basis for harmonizing the two potentially conflicting statutes, and the statutes are 'irreconcilable, clearly repugnant, and so inconsistent that the two cannot have concurrent operation.'" Id. at 477 (citing In re White, 1 Cal. 3d 207, 212 (1969)).

The AB 5 test is far from dead: It exists in Labor Code Sections 2775-2776 and continues to apply to a range of workers beyond the scope of Prop. 22. Those laws have coexisted with Business and Professions Code Sections 7451-7463 as of Dec. 16, 2020. The ABC test was never repealed, either by Prop. 22 or by any other mechanism. In Evangelatos v. Sup. Ct., 44 Cal. 3d 1188, 1193-94 (1988), the California Supreme Court declined to give a ballot initiative retroactivity, noting that it was silent on the point: "It is a widely recognized legal principle ... that in the absence of a clear legislative intent to the contrary statutory enactments apply prospectively. The drafters of the initiative measure in question, although presumably aware of this familiar legal precept, did not include any language in the initiative indicating that the measure was to apply retroactively to causes of action that had already accrued and there is nothing to suggest that the electorate considered the issue of retroactivity at all ... [T]he overwhelming majority of prior judicial decisions -- both in California and throughout the country -- the statute applies prospectively. "

The "economic realities test" under the Fair Labor Standards Act also shows that Uber drivers are owed payment of all legitimate wages (including minimum wage and overtime), which accrued while drivers were "on-call." That test looks at the degree to which the employer has the right to control the manner in which work is performed; the degree to which the worker's opportunity for profit or loss depends upon the worker's managerial skill; the worker's investment in equipment or materials required for performance of tasks, or the worker's hiring of helpers; whether the service rendered requires a special skill; the degree of permanence of the working relationship; and whether the service rendered is an integral part of the employer's business. New guidance, effective March 1, from the Department of Labor identifies two factors in the economic realities test that are to be considered more probative: the nature and degree of control over the work and the worker's opportunity for profit or loss based on initiative and/or investment.

In March 2020, the 3rd U.S. Circuit Court of Appeals reversed a district court's ruling that Uber drivers were not employees under the FLSA's economic realities test. Razak v. Uber Techs., Inc., 951 F.3d 137. The court found that triable issues of fact existed in connection with the "right to control the manner to work," expressly recognizing that Uber determines how its drivers are paid, where they drop off customers, and whether drivers continue to get work if they fall short of a certain rating. It noted that "Uber decides (1) the fare; (2) which driver receives a trip request; (3) whether to refund or cancel a passenger's fare; and (4) a driver's territory, which is subject to change without notice."

Prop. 22 is also being challenged on constitutional grounds in Alameda County Superior Court (Castellanos v. California). Given that the state's highest court has already declined to review the issue, this new challenge is unlikely to be successful.

So when, in fact, did these thousands of Uber, Lyft, Instacart and other drivers become exempt from the ABC analysis? From what date are the companies relieved of their obligation to pay minimum wage and overtime, reimburse for mileage, provide meal and rest breaks, contribute payroll taxes and conform to all other requirements of employment? Can a simple vote of the state's residents suddenly release them from billions of dollars in unpaid obligations?