Gig companies got too greedy with Prop 22

On Aug. 20, in a ruling celebrated by some and decried by others, Alameda County Superior Court Judge Frank Roesch ruled portions of Proposition 22 unconstitutional, rendering it unenforceable in its entirety. The ruling came in a suit filed by the Service Employees International Union and others against the state of California and the director of the California Department of Industrial Relations.

Proponents of Prop. 22, officially titled the Protect App-Based Drivers and Services Act (Bus. & Prof. Code Sections 7448 et seq.), have already vowed to appeal the ruling. The ongoing battle seems destined to work its way to California's Supreme Court, and the debate seems likely to spread across the country as companies such as Uber and Lyft push similar legislation in other states.

Background

Prop. 22 was a deeply contested 2020 ballot measure, which saw "network companies" such as Uber, Lyft and DoorDash spend a record breaking $200 million in support of their campaign to classify their "app-based drivers" as independent contractors. It was approved by almost 59% of voters. Classified as independent contractors under Prop. 22, the drivers were then ineligible for many of the basic protections and benefits afforded to California employees, including overtime pay, access to pre-pandemic unemployment benefits, access to the worker's compensation system, and the right to collectively bargain, among others. According to California's Legislative Analyst's Office's analysis of Prop. 22, those costs "usually make up 20 percent of employee costs."

Prop. 22 was the companies' response to Assembly Bill 5, which became effective Jan. 1, 2020. AB 5 codified and expanded upon the California Supreme Court's landmark decision in Dynamex Operations West, Inc. v. Superior Court, 4 Cal. 5th 903 (2018), which adopted the "ABC test" for purposes of determining who qualifies as an independent contractor for California wage orders. Under the test, the individual is presumed to be an employee of the hiring entity, unless the entity satisfies each of the three prongs of the test. AB 5 made the ABC test applicable to the provisions of the Labor Code and the Unemployment Insurance Code, unless otherwise exempted.

After AB 5 became effective, Uber and Lyft continued to classify their drivers as independent contractors, which lead to a lawsuit filed against them by the attorney general of California and the city attorneys for Los Angeles, San Diego and San Francisco. On Aug. 10, 2020, San Francisco Superior Court Judge Ethan P. Schulman issued a preliminary injunction enjoining Uber and Lyft from continuing to classify their drivers as independent contractors. In the order, Judge Schulman noted Uber and Lyft's "prolonged and brazen refusal to comply with California law" and wrote that they "may not evade legislative mandates merely because their businesses are so large that they affect the lives of many thousands of people." The 1st District Court of Appeal affirmed the injunction on Oct. 22, 2020. Before the injunction went into effect, Prop. 22 passed, making the drivers independent contractors. However, that classification and the constitutionality of Prop. 22 have now been called into question by Judge Roesch's recent ruling.

The Ruling, abridged

Judge Roesch found Business and Professions Code Sections 7451 and 7465(c)(4) unconstitutional. In addition, the court found the entirety of Prop. 22 unenforceable because Section 7451 could not be severed from it.

Worker's Compensation. Section 7451 classified the drivers as independent contractors, so long as certain conditions were met. Due to that classification, the drivers were not eligible to participate in the worker's compensation system. However, the California Constitution vests the legislature with the "plenary power, unlimited by any provision of this Constitution, to create, and enforce a complete system of workers' compensation" and the Legislature has the power to include or exclude workers therefrom. Cal. Const. art XIV, Section 4; Lab. Code Section 3352(a)(7). According to the court, Section 7451 acted as a limitation on the Legislature's plenary power to create and enforce a complete worker's compensation system and was "therefore an unconstitutional continuing limitation on the Legislature's power to exercise its plenary power to determine what workers must be covered or not covered by the worker's compensation system." As a result of that finding, the entirety of Prop. 22 was held to be unenforceable because Section 7451 was not severable from the remainder of Prop. 22. Bus. & Prof. Code Section 7467(b).

Amendments and Single Subject Rule. The court also found Section 7465(c)(4) unconstitutional. Section 7465 broadly addressed what constitutes an amendment to Prop. 22 and the process by which amendments to the law could be made. For example, Section 7465(a) required any amendment to be "consistent with, and further[] the purpose of" Prop. 22 and required that such an amendment pass each house of the Legislature by a seven-eighths majority, which, according to the court, is "difficult to the point of near impossibility."

For its part, Section 7465(c)(4) defined an "amendment" to Prop. 22 as "[a]ny statute that authorizes any entity or organization to represent the interests of app-based drivers in connection with drivers' contractual relationships with network companies, or drivers' compensation, benefits, or working conditions." Such an amendment had to be passed in accordance with Sections 7465(a) and (b).

The court found Section 7465(c)(4) constitutionally problematic for two reasons; "it defines unrelated legislation as an 'amendment' and is not germane to Proposition 22's stated 'theme, purpose, or subject.'" On the first point, the court envisioned future legislation extending some form of collective bargaining rights to independent contractors. While that hypothetical legislation would qualify as an "amendment" under Section 7465(c)(4), it would not qualify as an "amendment" for purposes of Article II, Section 10(c), of the California Constitution. Essentially, Section 7465(c)(4) acted as an unconstitutional restraint on the Legislature's ability to exercise its constitutionally backed amendatory power. On the second point, under California law, initiatives must be limited to a single subject. The general test to make that determination is "whether the parts of a statute are 'reasonably germane to a common theme, purpose, or subject.'" The court found that Section 7465(c)(4)'s prohibition on legislation authorizing collective bargaining "does not promote the right to work as an independent contractor, nor does it protect work flexibility, nor does it provide minimum workplace safety and pay standards for those workers. It appears only to protect the economic interests of the network companies in having a divided, ununionized workforce, which is not a stated goal of the legislation."

Concluding remarks

This decision makes it clear that the gig companies overreached in their efforts to exploit both their drivers and their potential victims. Prop. 22 took away the drivers' rights to be protected by the many laws put into place in California to protect employees. It will make it impossible for the drivers to obtain any worker's compensation benefits, while simultaneously making it much more difficult for driver's to be protected by California laws meant to prevent discrimination and harassment. Further, it will make it more difficult for the customers of Lyft and Uber to be protected from the harassment and discrimination of their drivers, a very real and serious problem, particularly once drivers are classified as independent contractors.

Finally, if allowed to remain law, Prop. 22 will make it more difficult for victims of the negligent driving of both ride-share drivers and delivery drivers to receive fair and just compensation for severe injuries. These companies are already taking the position that the companies themselves are not responsible for severe injuries and wrongful deaths caused by their drivers. If the companies cannot be successfully sued and a victim's compensation is limited to the one-million-dollar insurance policy provided to drivers, catastrophically injured victims whose medical bills, income losses, and suffering could well exceed the million-dollar policy will be left terribly undercompensated and holding the bag for companies such as Uber and Lyft. The same would be true for the families whose loved ones are killed by gig drivers. The public has been fooled by these greedy companies. Thankfully, a court has stepped in to protect the public from companies who care more about profits than the safety and well-being of their drivers and the people they serve.