Welcome

California Courts Grapple With Proposition 22’s Gig Fallout

Feb. 25, 2021, 10:31 AM

Uber Technologies Inc., Lyft Inc., and other gig companies want California courts to throw out rulings from last year that ordered them to treat drivers as employees, setting the stage for legal clashes that could mean millions owed to workers in cases filed before Proposition 22 passed.

How the voter-approved ballot measure will apply to pending cases involving app-based companies and California regulators raises complex issues that will work their way through state courts, starting at the trial level, attorneys said.

“It isn’t as simple as Prop. 22 passed, Uber wins,” said Katherine Catlos, a management-side attorney with Kaufman Dolowich Voluck LLP.

California’s ongoing gig worker classification disputes stand in stark contrast to developments in countries like the U.K., where its top court unanimously held last week that Uber drivers are entitled to minimum wages, holiday pay, and rest breaks—the type of job benefits available to only employees in the U.S.

A similar ruling is far from becoming reality in the U.S., leaving the fate of gig workers’ employment status at the mercy of differing federal and state standards.

In California, appeals courts have generally been hesitant to vacate preliminary injunctions against gig companies that predate Proposition 22, which carved out app-based drivers from Assembly Bill 5, a law that makes it harder for employers to classify workers as independent contractors instead of employees.

A recent case involving Instacart is one exception, but even that challenge has joined others in being kicked back to trial courts to determine Proposition 22’s effect.

In some cases, such as the San Francisco city attorney’s lawsuit against DoorDash Inc., trial judges are weighing arguments to dismiss litigation entirely based on Proposition 22. Others are considering the measure’s effect on gig company challenges against A.B. 5, while one union-backed lawsuit is trying to strike down the November ballot measure as unconstitutional.

But even with the ballot initiative, gig companies could be on the hook for hundreds of millions in liability from violations before it took effect, said Warren Postman, a partner with Keller Lenkner LLC, whose firm has brought thousands of arbitration claims against gig companies.

“Let’s put it this way, I don’t think anyone dropped any of the cases when Prop. 22 passed,” Postman said. “In our view, they were violating the labor code up until when Prop. 22 took effect and they will have to answer for that.”

Uber, Lyft, and Postmates representatives and city attorneys for San Diego and San Francisco didn’t respond to requests for comment on pending litigation. DoorDash referred media inquiries to Protect App-Based Drivers & Services, a campaign that supported Proposition 22, which didn’t respond to a request for comment.

Litigation Minefield

Rather than creating a clear pathway for California’s gig economy, Proposition 22 has added to a legal minefield, not just for the parties to pending litigation but for courts as well, said Michael Kun, an attorney with Epstein, Becker & Green PC.

The newly approved measure offers companies the hope of a “cap” on misclassification damages, said Michele Miller, West Coast chair of labor and employment at Cozen O’Connor PC. “But it’s a never-ending issue, and each time courts and the state legislature weigh in, a new set of issues is created.”

The California Supreme Court sidestepped the issue of Proposition 22’s application to existing litigation, declining Feb. 10 to directly take up review of an injunction requiring Uber and Lyft to treat drivers as employees in a lawsuit filed by the state.

The top court’s refusal to set aside the injunction means these issues will be decided by a trial court, resulting in a lengthier process than the gig companies may have hoped for, Kun said.

It’s possible trial courts will only dissolve injunctions after companies show they’re complying with the compensation and benefits provisions of Proposition 22, and that their workers do fall under the rule’s umbrella, Kun said.

In this video, we explore why tech companies and state governments are at odds over how to properly classify gig workers.

Instacart Ruling Overturned

One California appeals court, however, has reversed a misclassification injunction in the San Diego city attorney’s case against Instacart. The California Court of Appeal, Fourth District, on Feb. 17 said the injunction must be reversed after the passage of Proposition 22.

The trial court’s injunction requires Instacart to determine how to comply with a “decidedly undeveloped area of law,” said Presiding Justice Judith McConnell. “There can be no doubt people of common intelligence would differ as to the meaning and application of the relevant law in this context.”

The decision is further evidence that the courts see an extremely complex environment in the pending classification litigation, Catlos of Kaufman Dolowich Voluck said.

But that reversal isn’t necessarily an indication of how the court will apply Proposition 22, said Catherine Fisk, a law professor at the University of California, Berkeley.

Not all gig companies are automatically off the hook under the ballot measure, which protects drivers and not necessarily workers who are also in-store shoppers, Fisk said.

An Instacart representative said the company doesn’t comment on pending litigation.

Still on the Line

Regardless of whether new injunctions are issued or prior injunctions are overturned, lawsuits filed before Proposition 22 will move forward.

That creates significant potential exposure in ongoing litigation with workers, whose cases can’t be tossed out because the ballot measure isn’t retroactive, Kun said—and not all gig companies are covered by the new rule.

“At this point, the only companies who should feel comfortable moving forward that they aren’t going to be sued for the alleged misclassification of workers are those that helped write and promote Proposition 22, because you have to believe they know the law and how to comply,” Kun said.

Companies may return to arguing that their workers weren’t employees under A.B. 5 to avoid orders and damages sought by the state in pre-Proposition 22 litigation, said Miller of Cozen O’Connor.

In San Francisco, Doordash says an A.B. 5 lawsuit brought by the city attorney is barred by Proposition 22. Alternatively, that suit should be paused while Doordash seeks approval of an $88.5 million settlement with drivers in a separate pending case, the company said.

A.B. 5 Challenge

Proposition 22 has also thrown a wrench into an appeal brought by Uber, Postmates, and two of their workers, who argued A.B. 5 is unconstitutional and sought an injunction blocking its enforcement by the state.

A U.S. Court of Appeals for the Ninth Circuit panel questioned during November oral arguments whether the case still presented an actual or live dispute, given that the measure now exempts app-based gig workers from A.B. 5’s reach.

Both sides later told the appeals court that Proposition 22 doesn’t moot the case.

Although the measure supersedes A.B. 5, the companies said state officials “have thumbed their noses at the People’s will” by continuing to seek forced reclassification of app-based drivers.

The state argued that the appeal remains viable because there are pending enforcement actions against Uber that will require determining whether the ballot measure applies to its workers.

Hot Potato for Courts

Meanwhile, a direct constitutional challenge to Proposition 22 is pending before a state trial court. The lawsuit seeks an order declaring the measure invalid because it limits elected leaders’ governing power and strips worker rights.

According to UC Berkeley’s Fisk, that is the case to watch.

But Miller of Cozen O’Connor doesn’t see a path forward for the challenge.

“It would require negating a proposition that passed with pretty overwhelming support in California,” Miller said. “I’m not sure the courts are going to touch this hot potato.”

—With assistance from Kathleen Dailey

To contact the reporters on this story: Maeve Allsup in San Francisco at mallsup@bloomberglaw.com; Erin Mulvaney in Washington at emulvaney@bloomberglaw.com

To contact the editors responsible for this story: Jay-Anne B. Casuga at jcasuga@bloomberglaw.com; Rob Tricchinelli at rtricchinelli@bloomberglaw.com

To read more articles log in.

Learn more about a Bloomberg Law Subscription.