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Millions at Stake for Gig Companies as Prop. 22’s Reach Debated

July 1, 2021, 8:46 AM

California courts are poised to decide a hotly debated issue that would allow gig companies including Uber Technologies Inc., Doordash Inc., and Grubhub Inc. to avoid millions in potential damages sought by drivers in worker classification lawsuits filed before Proposition 22 took effect.

Bankrolled by app-based businesses, last year’s $225 million Prop. 22 voter initiative carved out ride-hail and delivery drivers from a strict state law that would have required gig platforms to treat their workers as employees rather than contractors. Employment status carries a host of tax, wage, and job benefit costs for companies.

California judges have recently allowed gig companies to argue that Prop. 22 should abate claims that were filed before it went into effect. One judge in a case against Uber last month called this argument levied by the companies “a novel issue under state law.”

“We are asking the courts to respect the will of California voters by applying Proposition 22 to any pending worker classification claims,” Theane Evangelis, a Gibson, Dunn & Crutcher partner who represents Uber and GrubHub, said in an email. “After an important policy change like Prop. 22, a century of California case law holds that courts must honor it by applying it to pending statutory claims.”

The companies have cited decades-old California precedent to bolster their abatement arguments, and say the new rule repealed older law with respect to app-based drivers. The arguments are unusual in the context of a ballot initiative, in particular, and courts weighing the intent of voters could open up a wave of litigation, academics say.

“Naturally, as we’ve seen before, the companies will make every argument they can to get out of the ramifications of misclassifying their workers,” said Shannon Liss-Riordan, an attorney with Lichten & Liss-Riordan P.C. who represents drivers in disputes with GrubHub and Uber. “Abatement is the latest hook. This issue is far from done.”

The confusion over the reach of Prop. 22 comes at a time when Uber and other major gig players have said they will use it as a blueprint to propose similar measures in other states, including in Massachusetts.

“If the companies are successful in other states at getting legislation like Prop. 22 enacted to exempt them from state wage laws, then we’ll see them arguing abatement under any such law,” said Catherine Fisk, a law professor at the University of California, Berkeley. “A fair amount of money is at stake because the companies face liability for wages not paid to drivers during the period before Prop. 22 went into effect.”

Uber, DoorDash, and Grubhub didn’t respond to requests for comment on their legal strategies.

The Abatement Argument

The California Supreme Court ruled in January that its April 2018 decision in Dynamex Operations West v. Superior Court—which created the worker classification standard later codified into a 2019 law known as Assembly Bill 5—was retroactive for the purpose of wage disputes.

Attorneys for drivers in misclassification disputes have said that it’s clear gig companies should be on the hook for ongoing litigation filed before voters approved Prop. 22.

Uber’s abatement argument is an unusual one, said Karen Petroski, a professor at the Saint Louis University School of Law. That doctrine is more often applied to legislative actions, while Prop. 22 was a ballot initiative decided by voters who are potentially subject to misinformation and disinformation.

Attorneys for the gig companies argue that there is precedent under California law for Prop. 22 to nix pending misclassification claims.

In a 1977 California Supreme Court case, for example, a teacher was fired for marijuana use. While his appeal was pending, a new statute was enacted that prevented public entities from revoking rights based on prior marijuana convictions, and the top court overturned a trial court’s ruling affirming his dismissal.

A 1986 California appeals court case allowed an injured California State University football player to receive workers’ compensation based on a retroactively applied legislative amendment.

The court concluded, “The retroactive operation of a civil statute is by no means unusual, and no constitutional objection exists to such operation save where a vested right, or the obligation of a contract, is impaired.’”

Uber attorneys say, however, that their abatement argument is separate from a claim that Prop. 22 applies retroactively, which could put companies on the line for failing to provide driver reimbursements and other benefits guaranteed under the ballot measure before it went into effect.

‘Novel’ Area

To prove that older misclassification claims are abated by Prop. 22, Uber will likely have to show that the ballot measure repealed A.B. 5 and the wage orders interpreted in the 2018 Dynamex decision, the U.S. District Court for the Northern District of California recently said.

“By arguing abatement, Uber asks this federal court to make an important decision on a novel issue under state law,” Judge Phyllis Hamilton wrote in declining to dismiss claims filed by Uber Eats delivery drivers.

She said Uber failed to show that Prop. 22 meets the requirements for repealing existing law: that the two rules are irreconcilable, and that the intent behind the new statute was to supersede the old.

That’s a challenging assertion for Uber to make, given the required presumption against repeal, the lack of information given to voters about Prop. 22’s potential impact on existing law, and the company’s own involvement in its promulgation, Petroski of Saint Louis University said.

Hamilton also wrote she will consider any additional evidence the parties can provide as to voter intent before making a decision.

A.B. 5 can continue to operate alongside Prop. 22 in some instances because companies must meet certain conditions in order for the initiative to apply, Hamilton said. Even if all conditions are met, companies still have the choice to classify workers as employees, she said.

VIDEO: App-based companies and state governments are at odds over how to properly classify gig economy workers.

Other Gig Cases

In January, Judge Edward M. Chen of the U.S. District Court for the Northern District of California stated Prop. 22 wasn’t retroactive in an order certifying a class of more than 4,800 Uber drivers who allege misclassification. He later reversed his decision because he had ruled too soon.

He allowed Uber to amend its defense to add Prop. 22 abatement in the class action lawsuit. No judges have issued rulings on the merits of abatement.

In a misclassification case against Grubhub at the U.S. Court of Appeals for the Ninth Circuit, the company’s lawyers also argued that Prop. 22 should be considered. GrubHub’s point of view is that Prop. 22 was clearly meant to supersede the policy created by A.B. 5.

The federal appeals court judges in June questioned the attorneys on whether the issue needed further review by a lower court.

Meanwhile, DoorDash says it’s prepared to wield the Prop. 22 abatement argument in a misclassification lawsuit filed by San Francisco District Attorney Chesa Boudin. After several months of discovery, the court is scheduled to hear arguments in September over whether the company meets the requirements for exemption under the ballot measure.

If the court finds DoorDash does meet those requirements, San Francisco plans to challenge Prop. 22 on constitutional grounds, Assistant District Attorney Scott Stillman told the San Francisco Superior Court in a June hearing.

That challenge would bring the state’s position on Proposition 22 into greater uncertainty, as the California Attorney General is currently defending the measure in a separate constitutional challenge. In that case, the Service Employees International Union, the SEIU California State Council, and four gig drivers allege the new rule violates the state’s constitution.

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

To contact the editors responsible for this story: Jay-Anne B. Casuga at jcasuga@bloomberglaw.com; Meghashyam Mali at mmali@bloombergindustry.com

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