The next battle in the long-running California war over who’s an employee and who’s an independent contractor will take place in a San Francisco courtroom with arguments on the constitutionality of a voter-approved, court-suspended initiative carving out gig workers from the state’s worker-friendly classification law.
The California Court of Appeal, First District, on Tuesday—more than two years after voters approved the measure—will hear their arguments for overturning a successful effort by individual drivers and the Service Employees International Union to block the law. A ruling is expected within 90 days.
“This case is important to preserve the integrity of Californians’ right to propose and adopt laws by using the ballot initiative,” Loren Kaye, president of the California Chamber-affiliated California Foundation for Commerce and Education, said in an email. “The trial judge wrongly walled-off entire subject areas from the voters’ ability to legislate, which we wish to restore.”
The fight dates back to the California Supreme Court’s landmark 2018 Dynamex Operations West Inc. v. Superior Court decision, which set a three-part test for determining whether a worker is an employee or independent contractor.
The state in 2020 enacted legislation (A.B. 5) that codified the Dynamex ruling. Lawmakers a year later passed legislation (A.B. 2257) that further limited what occupations would be exempted from state employment protections such as overtime and worker’s compensation. Prop. 22 added gig workers to that list.
Reclassifying drivers, shoppers, and delivery people as employees carries a big financial risk, the companies have said in financial filings, with their entire business models based on the workers not being employees and the resulting expenses.
“California has the strongest misclassification laws in the nation,” said Lorena Gonzalez Fletcher, California Labor Federation executive secretary-treasurer and the lawmaker who authored A.B. 5.
“I believe we will win at the appeals court. I believe we ultimately will win at the supreme court,” Gonzalez Fletcher said in an interview. “The California Supreme Court thought they were settling something with Dynamex.”
An Alameda County Superior Court judge last year struck down Prop. 22, holding the initiative was unconstitutional. The court ruled excluding “app-based drivers” from the state worker’s compensation system and prohibiting the legislature from acting in the future impermissibly interferes with lawmakers’ plenary power.
Judge Frank Roesch also said then that Prop. 22’s limiting of drivers’ collective bargaining rights “appears only to protect the economic interests of the network companies in having a divided, ununionized workforce.”
That, Roesch said, was unrelated to the measure’s stated purpose of “protecting the opportunity for Californians to drive their cars on an independent contract basis, to provide those drivers with certain minimum welfare standards, and to set minimum consumer protection and safety standards to protect the public.”
Upholding the trial court “will muddy the initiative drafting process, chill new initiatives in areas that are important to California voters and businesses, and give license to California judges to uphold or invalidate initiatives based on their subjective policy views,” lawyers arguing for the California Chamber of Commerce said in an appellate filing.
The state, which must defend all initiatives once they pass, claims Roesch’s ruling “unnecessarily creates a conflict between two constitutional provisions where none exists” and that provisions requiring any amendments pass by a seven-eighths margin in the legislature “merely specify conditions for amending Proposition 22, which the case law permits.”
And a group backing the initiative, intervenors Protect App-Based Drivers and Services, called Prop. 22 “quintessentially Californian—a comprehensive and innovative solution to the question of classifying workers in the modern, on-demand economy” that was enacted by a 17% margin.
But Prop. 22 directly conflicts with the legislature’s unlimited power to establish a worker’s comp system, a power that was “granted by a constitutional amendment in 1918—seven years after the right of initiative was added to the Constitution,” contend attorneys representing driver Hector Castellanos and the union. And, they argue, restricting or withdrawing the legislature’s unlimited power requires another constitutional amendment, not just a statutory initiative.
Plaintiffs are hoping the appeals court affirms the trial judge’s decision that Prop. 22’s provisions are contrary to the California Constitution “and so the entire initiative is void,” Stacey Leyton, an Altshuler Berzon partner, representing SEIU and the individual drivers, said in an email. “That ruling would provide the needed clarity for both workers and employers: that for-hire drivers are employees under California law, and thereby entitled to all of the protections of California’s labor and employment laws,” she said.
Still more uncertainty could come in a ruling from the US Court of Appeals for the Ninth Circuit on a separate challenge to A.B. 5, which Uber, Postmates, and two gig workers want invalidated. The court has yet to rule after July oral arguments.
“It won’t surprise me if it’s a couple years before we really know if Prop. 22 is gone forever, and perhaps they’ll come back with another initiative that does something different, unless the courts say that worker’s comp, because it’s a constitutional benefit, is the province of the legislature,” Julius Young, a workers comp lawyer with Boxer & Gerson LLP, said in an interview.
Bait and Switch?
California election law professors agree that the trial court’s decision is unprecedented. Prop. 22 “purports to limit legislative amendments on collective bargaining, a subject different from that of the rest of the initiative,” the academics professors argued in a friend-of-the-court brief. “This limitation, whether styled as an `amendment’ or not, usurps the Legislature’s constitutional power.”
If the court approves the “amendment” limitation on lawmaking power, “it will work mischief and provide a roadmap for future initiatives to upset the delicate balance between legislative powers given to the People of the State of California and those given to the Legislature,” they said.
“It would allow a bait and switch,” they said, “in which voters pass an initiative on Subject A but the fine print will unconstitutionally prevent or limit the Legislature’s ability to legislate on Subject B. It will allow the trampling of political and civil rights without recourse to otherwise-permissible legislation.”
Olson Remcho LLP, Altshuler Berzon LLP, and SEIU legal department represent Castellanos and SEIU. The California Attorney General’s office represents the state.
The case is Castellanos v. California, Cal. Ct. App., 1st Dist., No. A163655, 12/13/22.