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October 18, 2021
Judge Declares California’s Prop 22 Unconstitutional, Decision to be Appealed

By Mark I. Schickman

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California has an odd lawmaking system, and nothing exemplifies that more than the fight over independent contractor status of app-based drivers. The issue has gone from the legislature to the courts, back to the legislature, then to the ballot box, and now again to the courts.

ABC Test

Since 1937, California's labor code has had a presumption that anybody who renders services for another is an employee, unless it's proven she is an independent contractor. Over the course of many decades, the courts developed a common-law test to determine independent contractor status, a multifaceted approach called the Borello rule.

Dynamex Operations West v. Superior Court, the California Supreme Court dispensed with that test, saying it was too uncertain, and replaced it with the "ABC test." The hiring entity had to prove all three of the ABC factors to show independent contractor status:

  • A The worker is free from the control and direction of the hirer;
  • B The work is outside the usual course of the hiring entity's business; and
  • C The worker is engaged in a regular business of the same nature as the work performed.

Unless all three factors were shown, the worker was an employee.

The legislature wouldn't leave well enough alone, so later that year, it presented Assembly Bill (AB) 5, which generally put the ABC test into the Labor Code. But like all political processes, the lawmakers were besieged by lobbyists advocating exemptions for their own interests. The result is a bill that contains numerous exemptions that make little logical sense.

The original exemptions to AB5 extended to doctors, dentists, insurance agents, lawyers, accountants, real estate agents, and hairstylists, among others. They then were expanded to cover many types of journalists (but not all), musicians, prefab housing salespeople (but not others), insurance inspectors, and youth sports coaches, to name a few.

Prop 22

Having lost in the legislature, the app-based driving industry turned its attention to California's proposition system, in which the voters can make direct changes to statutes or the constitution. Led by Uber, Lyft, and Doordash, the industry contributed and spent more than $200 million promoting Proposition 22, which declared app-based drivers independent contractors. After swamping the opposition with months of ubiquitous commercials, Proposition 22 netted 60 percent of the vote, and app-based drivers were broadly characterized as independent contractors once again.

But several drivers and their unions took the issue to court, claiming Proposition 22 was unconstitutional. In late August, Alameda County Superior Court Judge Frank Roesch agreed, finding the proposition unconstitutional because it:

  • Infringes on the constitutional power of the legislature to regulate compensation for workers' injuries and therefore requires a "constitutional initiative" rather than a "statutory initiative"; and
  • Violates a constitutional provision that requires initiatives to be limited to a single subject because it included language aimed at preventing drivers from unionizing.

Since a ballot initiative can't be amended after voters pass it, any unconstitutional provision renders it unenforceable. Uber and Lyft declared they will appeal the determination.

Bottom line

One could argue all three levels of government involved in this ping-ponged determination are partially responsible for the current confusion. In 2018, the California Supreme Court muddied the waters by disturbing the intricate, decades-old Borello rule in favor of the simpler but less precise ABC rule. Sacramento added to the confusion by transforming an evolving judicial doctrine into a statute, replete with political tinkering. Much blame also goes to the initiative process, which allows Californians to make important policy decisions based on media buys and 30-second commercials rather than public policy analysis.

As this matter proceeds to the California Supreme Court for a final resolution, two competing policies will be applied. The initiative is the will of the people, and courts don't like to disturb that. But Proposition 22 removes important employment policy from the statutory and judicial process, and courts don't like that.

If Proposition 22 is ultimately stricken, expect a new initiative to be introduced and several more months of dueling commercials over whether drivers want to be independent contractors or employees and whether the riding public is willing to pay for it.

Mark I. Schickman is an editor of California Employment Law Letter and the founder of Schickman Law in Berkeley, California. Schickman is an employment advisor to a wide scope of businesses and executives, and harassment trainer for employees and supervisors. He litigates a wide range of employment and civil litigation in agencies, courts and through appeals. Mark can be reached at mark@schickmanlaw.com.

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