Yesterday, the nearly four-year legal battle to determine the classification of California gig workers came to a close. The California Supreme Court, in Hector Castellanos, et.al. v. State of California, et.al., unanimously upheld the California Court of Appeals, First Appellate District’s ruling that Prop. 22 (Proposition 22) did not violate the California Constitution.
The fight between the State of California and large app-based employers such as Uber, Lyft and Instacart goes back to 2018. On April 30, 2018, the California Supreme Court, in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903 (Dynamex), created a presumption that a worker who performs services for a hirer is an employee for purposes of claims for wages and benefits arising under wage orders issued by the Industrial Welfare Commission. The Supreme Court employed a three-part test, commonly known as the “ABC” test, to determine whether a worker is an independent contractor for those purposes. In 2019, the California Legislature passed Assembly Bill 5 (AB 5), which was later signed into law on September 18, 2019, that codified the California Supreme Court’s Dynamex ruling.
In response to AB 5, large companies led by Uber, Lyft and DoorDash helped fund a ballot initiative campaign to classify gig workers as independent contractors. Other large corporations, Instacart and Postmates joined Uber, Lyft and DoorDash in funding a ballot initiative campaign “Yes on Proposition 22”. The campaign “Yes on Proposition 22” succeeded in placing Prop. 22 as a ballot initiative in California’s November 2020 general election. California voters approved Proposition 22 and it became the law of California.
On January 12, 2021, the Service Employees International Union and four app-based drivers (Petitioners) sued California, starting the legal battle that culminated in yesterday’s California Supreme Court decision. The Petitioners argued that Section 4 of Article XIV of the California Constitution, “grants to the Legislature ‘plenary power, unlimited by any provision of this Constitution’ to establish and enforce a complete system of workers’ compensation.” Prop. 22 removed app-based drivers from the State’s system of workers’ compensation, and therefore impermissibly infringed the Legislature’s constitutional power to extend workers’ compensation benefits to app-based drivers.
Further, the California Legislature cannot amend a voter-approved ballot initiative, unless the initiative itself allows for legislative changes, without asking voters to approve those changes. It is the job of the California Supreme Court to define what constitutes a legislative amendment to a ballot initiative. However, the Petitioners argued that Prop. 22’s definition of amendment, which included: (a) unequal regulatory burdens between app-based rideshare companies and others performing similar work and (b) laws that allow for organizations, such as unions, to represent app-based drivers in connection with their contractual relationships with companies, was too expansive and impermissibly limited the Supreme Court’s ability to define “amendment”, and impermissibly limited the Legislature’s ability to legislate.
However, Justice Goodwin Liu in a 25-page opinion, wrote that Prop. 22 “does not preclude the electorate from exercising its initiative power to legislate on matters affecting workers’ compensation.” The Court disagreed with the Petitioner’s primary contention that Prop. 22, and other initiative-based laws, impermissibly infringed upon the Legislature’s plenary power to govern workers’ compensation. Instead, the Court found that, because the California Constitution did not “assign the Legislature sole authority, to the exclusion of the initiative power, to govern workers’ compensation,” there was no conflict between Prop. 22 and the constitutional powers of the Legislature.
Although Petitioners vowed that their fight was not yet over, Prop. 22 is now the law in California. Prop. 22 enacted labor and wage policies that are specific to app-based drivers and companies, including:
- payments for the difference between a worker’s net earnings, excluding tips and a net earnings floor based on 120% of the minimum wage applied to a driver’s engaged time and 30 cents, adjusted for inflation after 2021, per engaged mile;
- limiting app-based drivers from working more than 12 hours during a 24-hour period, unless the driver has been logged off for an uninterrupted 6 hours;
- for drivers who average at least 25 hours per week of engaged time during a calendar quarter, require companies to provide healthcare subsidies equal to 82% of the average California Covered (CC) premium for each month;
- for drivers who average between 15 and 25 hours per week of engaged time during a calendar quarter, require companies to provide healthcare subsidies equal to 41% of the average CC premium for each month;
- require companies to provide or make available occupational accident insurance to cover at least $1 million in medical expenses and lost income resulting from injuries suffered while a driver was online (defined as when the driver is using the app and can receive service requests) but not engaged in personal activities;
- require the occupational accident insurance to provide disability payments of 66 percent of a driver’s average weekly earnings during the previous four weeks before the injuries suffered (while the driver was online but not engaged in personal activities) for upwards of 104 weeks (about 2 years);
- require companies to provide or make available accidental death insurance for the benefit of a driver’s spouse, children, or other dependents when the driver dies while using the app;
Proposition 22 defined a driver’s engaged time as the time between accepting a service request and completing the request.
All companies using app-based drivers in California are encouraged to consult with a member of Tressler’s Employment Law practice group to ensure that their policies are compliant with Prop. 22. Tressler’s Employment Law practice group has significant experience in ensuring that companies comply with state and federal labor regulations, including independent contractor compensation and labor policies. If you have any questions or would just like to talk, please contact Bicvan Brown at bbrown@tresslerllp.com.
Jihoon Kim is an associate in Tressler’s Labor & Employment Practice Group in the Orange County office. He advises employers in management-side labor and employment litigation involving discrimination, harassment and wage and hour claims. Having also established and managed corporate human resource departments, Jihoon has drafted and reviewed personnel policies, employee handbooks and other employment-related materials and has conducted investigations and counseled employers in connection with a broad array of employee relations issues, including wage and hour, disability leave and harassment.
