The 132-page decision, released on the final day an appeals court can issue an opinion after oral argument, gave both sides something to praise while setting up the possibility of a California Supreme Court petition.
The initiative was promoted as a way to allow workers to retain their independent status and flexibility while freeing gig companies from paying overtime and other expenses under California’s worker-friendly labor laws. Drivers and the Service Employees International Union sued after Prop. 22 passed.
“We agree that Proposition 22 does not intrude on the Legislature’s workers’ compensation authority or violate the single-subject rule, but we conclude that the initiative’s definition of what constitutes an amendment violates separation of powers principles,” the three-judge panel held.
The court found the initiative violates the separation of powers principles by limiting lawmakers’ ability to enact amendments such as allowing gig workers to unionize. It severed that portion of the initiative and will “allow the rest of Proposition 22 to remain in effect, as the voters indicated they wished,” in a split victory for gig companies.
The ruling is the first appellate decision on the 2020 initiative that exempted gig workers from legislation (A.B. 5) that codified a California Supreme Court ruling. The ruling known as Dynamex created a three-part test to determine whether a worker is an independent contractor or an employee. The coalition that spent more than $200 million to get Prop. 22 on the ballot told reporters at oral arguments it would take the case to the California Supreme Court if it lost on the appellate level.
But Associate Justice Jon B. Streeter in a separate concurring and dissenting opinion said he believes “we must invalidate Proposition 22 in its entirety.”
The companies have said in financial filings that their entire business models are based on the workers not being employees, and due the resulting expenses, the ruling could affect thousands of drivers, shoppers, and delivery people in California.
Uber Chief Legal Officer Tony West in a statement called the ruling “a victory for app-based workers and the millions of Californians who voted for Prop 22.”
The Protect App-Based Drivers and Services coalition that backed the initiative called the ruling “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 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,” the group said.
Theresa Rutherford, SEIU California board member and SEIU 1021 president, in a statement said 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.”
“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,” Rutherford said. “However, the fact that these workers are still being denied the basic protections most workers have in California is a travesty.”
SEIU California Executive Director Tia Orr in a statement said drivers “have always led this movement, and we will follow their lead as we consider all options - including seeking review from the Supreme Court - to ensure that gig drivers and delivery workers have access to the same rights and protections afforded to other workers in California.”
The appeals court remanded the case to the Alameda County Superior Court judge who in 2021 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.
Olson Remcho LLP, Altshuler Berzon LLP and SEIU legal department represent Castellanos and SEIU. The California Attorney General’s office represents the state. O’Melveny & Myers LLP and Nielsen Merksamer Parrinello Gross & Leoni LLP represent intervenors Protect App-Based Drivers and Services.
The case is Castellanos v. California, Cal. Ct. App., 1st Dist., No. A163655, 3/13/23.
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