Fate of state’s gig economy in court’s hands
When Californians resoundingly approved a 2020 initiative sponsored by Uber and Lyft to reclassify their 1.4 million drivers in the state as contractors rather than employees, little attention was paid to the measure’s elimination of workers’ compensation coverage for a driver’s on-the-job injuries and illnesses. Now the legality of that provision is likely to determine the measure’s fate in the California Supreme Court.
The justices will hear arguments Tuesday on the constitutionality of Proposition 22, which won a 59% majority in November 2020 after a $200 million campaign by the ride-hailing companies Uber and Lyft and fooddelivery companies such as DoorDash and Instacart.
The case could have massive ramifications for the ride-hailing companies, headquartered mostly in the Bay Area, and their workers. Uber and Lyft, increasingly powerful in an industry formerly dominated by conventional taxicab firms such as Yellow Cab, say their business depends on being able to treat drivers as independent contractors, and have threatened to leave states and cities whose laws say otherwise.
Prop. 22 said the drivers were running their own businesses and exempted them from a state law defining them as employees, who unlike contractors are legally entitled to minimum wages, overtime, sick leave, payment for work expenses, and other benefits.
One of those benefits is workers’ compensation, which has been available for employees in California since the voters, in another initiative, authorized the Legislature to provide it in 1911. That initiative amended the state Constitution, and in 2021 an Alameda County judge ruled that Prop. 22 violated the Constitution — invalidating the entire ballot measure — by stripping the Legislature of its power to grant workers’ compensation.
A state appeals court disagreed last year, saying the voters had the same authority as the Legislature to regulate conditions of employment. But the state Supreme Court set that ruling aside when it agreed to hear the labor groups’ appeal, which argued that the ballot measure violates constitutional protections for workers that Californians approved more than a century ago.
Prop. 22 “exposes a massive workforce to uncompensated injury and economic insecurity, for no reason but to increase profits for app-based companies,” unions representing more than 800,000 workers in Los Angeles County, joined by Teamsters Union chapters statewide, said in a filing with the court.
Other labor groups noted that the 2020 initiative was drafted as a statute, not a state constitutional amendment, which would have required more signatures to qualify for the ballot but could also have repealed the 1911 amendment that gave the Legislature authority over workers’ compensation.
Supporters of Prop. 22 countered that the right to pass laws by initiative — also established by California’s voters in 1911 — was intended to give the last word to the people.
“The voters have the power to disagree with the Legislature. … That was the purpose of the initiative,” a group called Protect App-Based Drivers and Services, representing sponsors of the measure, told the court.
Opponents of Prop. 22, “unhappy with how the democratic process played out, now seek to undermine the People’s authority,” the California Chamber of Commerce said in a filing with the court.
Attorney General Rob Bonta, who opposed Prop. 22 but defends most state laws against court challenges, is apparently looking for a midway position.
Under the state Constitution, the voters have “broad power to enact legislation by initiative on virtually any subject, including workers’ compensation,” Deputy Solicitor General Samuel Harbourt, representing Bonta’s office, said in a filing. But if the court decides the Legislature can override Prop. 22 and provide workers’ compensation coverage to the drivers, Harbourt added, “it should simply say so” and leave the rest of the measure intact.
Bonta’s office also said Prop. 22 provides drivers with “a partial substitute for workers’ compensation,” including accident insurance and, for drivers working at least a minimum number of hours, a subsidy for health care. Labor unions called those protections “feeble” and said researchers at the UC Berkeley Labor Center had determined that the drivers’ average compensation is between $5.64 and $6.77 an hour.
Drivers for the companies appear to be divided on the issue. Sponsors of the measure say more than 20,000 drivers have signed petitions backing Prop. 22 since the court agreed to take up the case. One was Stephanie Whitfield, an Instacart driver who lives in the Coachella Valley (Riverside County).
“The flexibility (in setting her own work hours) has allowed me to continue focusing on my medical health while being able to work around my schedule and ensure I’m able to make ends meet,” Whitfield said in a statement released by Protect App-Based Drivers.
But Nicole Moore, a Los Angeles-area Lyft driver and president of a group called Rideshare Drivers United, said that since Prop. 22 took effect, “we’ve seen passenger prices skyrocket and we’ve seen our own wages plummet.”
“There’s not a driver I’ve found who was driving four years ago who today would support this law,” Moore told the Chronicle.
The case is being heard by a court with a 6-1 majority of Democratic appointees. Most of the current justices were also part of the court’s unanimous 2018 ruling in the Dynamex case, which said companies must classify workers as employees unless a company could prove the workers were running their own businesses. The Legislature adopted the same standards by passing AB5 in 2019, before the voters exempted the drivers from that law in 2020.
On the other hand, the court has often been deferential to the voters and the initiative process. That attitude was apparent in a hearing May 8 when the justices showed little inclination to grant requests by Gov. Gavin Newsom and legislative Democrats to remove from the November ballot a business-sponsored initiative that would require voter approval for any increase in state or local taxes or fees. Instead, the justices suggested that they would review challenges if the measure passed.
The court will probably be at least as deferential in the Prop. 22 case, said Clark Kelso, a professor at the University of the Pacific’s McGeorge School of Law in Sacramento and a longtime observer of the state’s high court.
“The Supreme Court is likely to give voters broad leeway in using the initiative power,” regardless of the authority voters granted to the Legislature over workers’ compensation in 1911, Kelso told the Chronicle. He predicted the court would overturn one section of Prop. 22, which would require a seven-eighths legislative majority to change some provisions of the measure and allow the drivers to join labor unions, but would leave the rest of the measure intact.
Meanwhile, the ridehailing companies are facing legal battles in other states. A federal court in Massachusetts is holding a trial on the state’s lawsuit accusing Uber and Lyft of misclassifying their drivers as independent contractors. The companies have threatened to leave Massachusetts if they lose the case, but are also proposing a November ballot measure similar to Prop. 22.
And at the federal level, President Joe Biden’s Labor Department finalized regulations earlier this year that could classify most or all of the California drivers as employees under U.S. law, entitling them at least to federal minimum wages — $7.25 an hour, compared with $16 in California.
The regulations, based on such factors as how much control the hiring company has over the work, took effect in March but are being challenged in court by the U.S. Chamber of Commerce and an organization that includes Uber and Lyft.
The state Supreme Court case is Castellanos v. California, No. S279622. A ruling is due within three months.