Prop 22 is in limbo as workers’ compensation provision deems bill unconstitutional

Buying a law and having the new law stick are not the same thing. Misleading the voters into passing an anti-worker, anti-union, and anti-safety initiative is only half the battle; convincing the courts that it is constitutional is a much bigger problem. Deemed the "App-Based Drivers as Contractors and Labor Policies Initiative", Prop 22 was on the ballot as an initiated state statute on November 3, 2020 and was passed by California voters. Over two hundred million dollars later, the most ever spent on a state ballot initiative, and Prop 22 is now hobbled - perhaps permanently. On Friday, Alameda Superior Court Judge Frank Roesch declared it unconstitutional on two separate grounds and ruled that the ballot measure is unconstitutional and unenforceable.

In the interest of full disclosure, if you search the state's election database you will see that I contributed $1,000 to the No on Prop 22 campaign. So, the news Friday of its unconstitutionality came as a very pleasant surprise. The fact is that the drafters of this initiative engaged in classic Icarus behavior, flying too close to the sun. In their quest to build the perfect bill and to insulate their specific industry from any problems or issues, they opened themselves up to constitutional challenges. Had they been satisfied with half a loaf, this may not have occurred.

By way of background, AB 5 was enacted in 2019 as the California Legislature sought to regulate individuals previously classified as independent contractors including app-based drivers for ride-hailing companies like Uber and Lyft and food-delivery companies like DoorDash and Postmates. Essentially, the Legislature was concerned that many workers were being incorrectly classified and, as a result, were being deprived of many of the basic protections that employees enjoy such as minimum wage and overtime. In response, the gig-economy industry immediately launched and financed Prop 22 -- the controversial state ballot initiative campaign to carve out app-based workers so that they could still be classified as independent contractors. There is no dispute that the gig workers that Prop 22 specifically sought to exempt were covered as employees under AB 5. This issue was previously decided in October 2020 by the Court of Appeal in People of the State of California v. Uber Technologies et al., A160706 (Cal. App. 1st Dist., filed August 17, 2020). Because Uber is in the same business as the drivers, the court found that they failed section B of the ABC test and drivers were therefore deemed to be employees. As such, when the voters determined in November 2020 -- with the passage of Prop 22 -- that app-based drivers would now be carved-out and classified as independent contractors instead of employees, the initiative changed the analysis and required the court to consider the powers of the Legislature.

The court considered three main issues: Prop 22's infringement on the Legislature's power to determine who is covered by workers' compensation system, amendments to the initiative, and the single subject rule.

The California Constitution vests in the Legislature the "plenary power, unlimited by any provision of this Constitution, to create, and enforce a complete system of workers' compensation." [emphasis added] In AB 5, the Legislature had previously determined app-based drivers were included in the workers' compensation system. However, Prop 22 removed these drivers from the protections of the workers' compensation system that the Legislature directed they receive. Per Judge Roesch's analysis, the term "Legislature" in the Constitution can mean "the people" acting through the initiative power so the people can act in the same way the Legislature could through the voters. However, per this analysis, a problem arises.

The California Constitution in another section declares that "the Legislature may not act to amend or repeal an initiative statute without a subsequent vote of the people." The court determined that "these two provisions are in conflict," explaining that if the Legislature's power is limited by initiative, then its power under the Constitution would not be plenary or "unlimited" as it applies to workers' compensation.

The court concludes that the proposal to exempt app-based workers could have been accomplished, but not through the initiative process. "If the people wish to use their initiative power to restrict or qualify a 'plenary' and 'unlimited' power granted to the Legislature, they must first do so by initiative constitutional amendment, not by initiative statute," the judge wrote. Prop 22 is therefore a "continuing limitation on the Legislature's...plenary power to determine what workers must be covered" by the worker's compensation system and must be struck down.

Theoretically, because Prop 22 had a severability provision, the court could have stricken the offending section. However, because the workers' compensation system is so intertwined with the determination of employee status, the court determined that it would be impossible to strike down Section 7451 and still have the remainder of the act survive. Thus, the court determined the entire act unconstitutional.

Another issue the court considered was Prop 22's "unusual" amendment process. The language of Prop 22 provided that the amendment process could only be accomplished with a 7/8th vote of both houses of the Legislature. This was obviously intended to make it virtually impossible to effectuate any changes to the legislation to the "point of near impossibility." However, the court concluded that despite this clear intent, the initiative process does allow for the proponents to include a method of amendment which they did do so the restrictive process alone was not enough to rise to the level of unconstitutionality. In addition to any amendment process that may be set forth in an initiative, the California Constitution allows for the Legislature to amend a bill by simple majority vote of both houses followed by a popular referendum. But, to the extent that the initiative intended to change that process, then that would be unconstitutional.

More problematic for the proponents of Prop 22, however, is the attempt to limit future acts of the Legislature's amendatory powers. Ultimately, the Court found that Prop 22 was unconstitutional because it purports to limit the power to pass future legislation that does not constitute an "amendment" as the initiative defines it. Specifically, the court finds that it "limits the power of a future legislature to define app-based drivers as workers subject to workers' compensation law."

Finally, the Court took up an argument regarding the single subject rule. Here is where the proponents of the bill engaged in substantial overreach. By declaring that app-based work is incompatible with collective bargaining thereby preventing drivers from unionizing, the ballot measure violated the single subject rule. While Prop 22 stated that it intended for app-based delivery drivers to be independent contractors, that should not prevent them from setting up guilds or other means to collectively bargain for rights. However, because of the language preventing these workers from collective bargaining, the ballot measure "appears only to protect the economic interests of the network companies in having a divided, un-unionized workforce, which is not a stated goal of the legislation." As such, under the single subject rule, the court struct down that section as unconstitutional.

While this fight is far from over, the first round was a decisive loss for the industry. The opinion is well reasoned and the Court of Appeal and the California Supreme Court, unlike the United States Supreme Court, have not been known to favor industry at the expense of worker protections. Frankly, the opposite is often true, and the app-based companies have a hard road ahead of them to reinstate Prop 22 as constitutional. While app-based companies have long argued that the cost of a ride or a food delivery might go up if their drivers must be treated as employees, it's a small price to pay to have workers treated fairly and under the terms set by the state legislature. As Prop 22 makes clear, the initiative process has major flaws especially when utilized by a specific industry to protect its bottom line. 