Two Steps Backward for Gig Economy Businesses After California Superior Court Judge Finds Proposition 22 Exemption to AB 5 Unconstitutional
San Francisco, Calif. (September 8, 2021) - In November 2020, California voters passed Proposition 22, which exempted gig economy businesses (such as Uber Technologies Inc., Lyft Inc., DoorDash Inc. and Instacart Inc.) from California Assembly Bill 5 (AB 5). Previously, AB 5 had required these “app-based drivers” to be classified as employees instead of independent contractors. In what is unlikely to be the only judicial attack on Prop. 22, an Alameda County Superior Court Judge recently deemed Prop. 22 unconstitutional and unenforceable.
In the decision issued Friday, August 20, 2021, Judge Frank Roesch held Prop. 22 was an unconstitutional amendment of state legislation and an illegal infringement on the California legislature’s authority and plenary power to regulate compensation for workers’ injuries.
Prop. 22 exempted gig workers from employee-friendly state labor laws by allowing these workers to remain classified as independent contractors as opposed to employees. This characterization for these “app-based drivers” impacts the workers’ wage protection and benefits, among other things. AB 5, which passed in 2019, required many industries to reclassify contract workers as employees based upon the “ABC Test” to afford them the maximum wage protections and benefits.
Judge Roesch distinguished that Prop. 22 was not an improper exercise by the people to vote in such measure. Rather, Prop. 22 limited power vested in the state legislature to regulate compensation for workers’ injuries. By including language aimed at preventing drivers from unionizing, the ballot measure also violated a constitutional provision requiring laws and initiatives to be limited to a single subject, which in turn “obliquely and indirectly” prevents app-based drivers from bargaining collectively.
The court further found Section 7451 of the proposition “unconstitutional because it limits the power of a future legislature to define app-based drivers as workers subject to workers’ compensation law.” Workers’ compensation is a benefit afforded only to employees. Such power cannot be amended or repealed through an initiative statute, but rather requires a constitutional amendment. Because Section 7451 of the proposition was not severable from the statute, the court found the entirety of Prop. 22 to be unenforceable.
Uber confirmed that it will be filing an appeal. Prop. 22 will remain in effect pending the outcome of the appeal. Uber and Lyft are part of another coalition to place a similar measure on the ballot in Massachusetts and New York. Judge Roesch’s decision indicates an uphill battle for future industry-funded ballot initiatives. We will continue to provide updates on the status of the appeal.
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Brittany A. Vulcan, Associate
Thalia S. Rofos, Partner