Proposition 22, which kept California’s independent contractor law AB5 from applying to app-based drivers like those from Uber and DoorDash, has been kept alive by a state appellate court ruling.
In a decision that lays the groundwork for an appeal because the three-judge panel did not fully agree on the issues, the Court of Appeal for the 1st Appellate District reversed the core of an earlier decision that Prop 22 was unconstitutional in exempting app-based workers from AB5.
That lower court decision from August 2021 was stayed and app-based workers, mostly drivers, continued to work without being impacted by the more restrictive independent contractor definitions of AB5.
Prop 22, approved on Election Day 2020, had been backed by companies whose model depends on app-based drivers, such as Uber (NYSE: UBER), Lyft (NASDAQ: LYFT) and DoorDash (NYSE: DASH). Instacart, whose workers are similar to personal shoppers, also was exempted.
The Prop 22 case is separate from ongoing litigation regarding AB5 in trucking.
“Today’s ruling is a historic victory for the nearly 1.4 million drivers who rely on the independence and flexibility of app-based work to earn income and for the integrity of California’s initiative system,” the Protect App-Based Drivers + Services group created by Uber and the others said in a prepared statement. “The Appeals Court upheld the fundamental policy behind the measure — to protect the independent contractor status of app-based drivers in California while providing drivers with new benefits.”
Prop 22 has several provisions that would grant app-based workers the ability to access such benefits as health insurance.
The Service Employees International Union released a statement quoting several labor officials criticizing the decision and noting that app-based drivers still can be organized under union representation despite the decision. The SEIU was one of the plaintiffs in the original litigation against Prop 22.
“The right to join together in a union is the most powerful way for workers to challenge gig corporations’ exploitative business model that profits off of paying low wages and silencing its workers,” David Green, executive board member of SEIU California and president of local 721, said in one of those statements released by the larger SEIU group. Provisions in Prop 22 spell out how gig workers can unionize.
“Today’s ruling opens the door to the possibility for gig drivers and delivery workers to transform their industry through a strong voice on the job. However, the fact that these workers are still being denied the basic protections most workers have in California is a travesty,” Green added.
The lower court decision finding Prop 22 unconstitutional turned on several key issues. One was its impact on the state’s worker compensation law, with Superior Court Judge Frank Roesch finding that provisions in Prop 22 violated that law. A second was a set of requirements on what the California legislature would need to do if it wanted to amend the provisions of Prop 22. The third issue that was the basis of Roesch’s action turned on the question of whether Prop 22 stuck to California laws requiring a state referendum to focus on a “single subject,” with potential unionization of gig workers at the heart of that question.
The appellate court panel agreed with the lower court finding on the amendment process though it overturned other rulings by Roesch, such as those dealing with worker compensation.
However, the panel said the amendment provisions could be severed from the rest of the language of the referendum and that Prop 22 could remain in effect while further legal procedures determine the validity of Prop 22’s language on amendments.
Veena Dubal, a professor at the University of California College of the Law, San Francisco, and a prominent legal voice in opposition to Prop 22, said in a Twitter thread about the decision that the court “agrees that Prop 22’s definition of an ‘amendment’ impedes on the judiciary’s authority to interpret what constitutes an amendment & also the legislature’s authority. But those parts can be severed w/o throwing out Prop 22.”
Laying the groundwork for an appeal, in addition to the severability question, may be the dissent of Judge Jon Streeter. While agreeing with some of the findings of the rest of the panel, Streeter argued that his objections to the question on the worker compensation provisions of Prop 22 led him to conclude that all of the law should be overturned. The SEIU in an earlier brief called the worker compensation provisions of Prop 22 “inferior private accident insurance as a substitute to the state’s regular worker compensation allowances.”
“I expect the CA Supreme Court will take this up on appeal,” Dubal said in her Twitter thread. “So all is not lost.”
Her thread concluded that “the oligarchs are dancing in the streets tonight.”
At the root of the debate remains AB5. That law, signed by Gov. Gavin Newsom in 2019, establishes the so-called ABC test to determine whether a worker is an employee or a legitimate independent contractor. Keeping app-based workers out from under the restrictions of AB5 was the goal of Prop 22.
The B prong of the ABC test is the key problem area not just for gig workers but also for trucking companies. It says a worker can be considered an independent contractor if “the worker performs work that is outside the usual course of the hiring entity’s business,” an obvious problem for a driver working for a company like Uber where driving is the core activity of the business, or an independent owner-operator working for a trucking company.
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