By Zachary Pyers, Esq. and Kenton Steele, Esq.

Workers have historically fallen into two categories: employees and independent contractors. In November 2020, California voters passed Proposition 22: a ballot initiative to create a third type of worker classification. It allows app-based rideshare and delivery drivers to nominally remain independent contractors but requires app-based delivery and rideshare companies to provide certain benefits that are traditionally only required for employees. These benefits include a minimum wage for hours worked, mileage subsidies, a health insurance stipend for drivers who work over fifteen hours per week, and payment for costs incurred from job-related injuries. However, unlike employees, app-based drivers are not eligible for the traditional workers’ compensation system and are restricted from collective bargaining. This statute may serve as a model for other states who are facing challenges with classifying app-based workers.

In February 2021, three California drivers and the Service Employees International Union filed a complaint against the State of California in the Alameda County Superior Court of California. In their complaint, the plaintiffs alleged that Proposition 22 was unconstitutional because it (1) intrudes on the Legislature’s exclusive authority to create workers’ compensation laws, (2) restricts the courts’ authority to interpret the Constitution, (3) limits the Legislature’s authority to enact legislation that would not constitute an amendment to Proposition 22, and (4) violates the single-subject rule for initiative statutes.

The Alameda County Superior Court agreed with the Plaintiffs’ first, third, and fourth arguments. In the ruling, the Superior Court held that Section 7451 of Proposition 22, declaring app-based drivers to be independent contractors, thereby removing them from the workers’ compensation system, usurps the Legislature’s power to determine which workers must be covered by workers’ compensation. This section is not severable from the remainder of the statute, so it rendered the entirety of Proposition 22 unenforceable. They also struck down Section 7465 subdivision (c)(4), which restricted collective bargaining as a violation of the single-subject rule for initiatives and re-defined an amendment, which violates the authority of the Legislature to enact legislation that does not constitute an amendment.

In March 2023, the 1st District Court of Appeals of California upheld the majority of Proposition 22. The Appeals Court struck down the provisions of Proposition 22 that restricted collective bargaining and changed the definition of an amendment but upheld the rest of the statute. This decision reversed most of the lower court’s decision, which struck down Proposition 22 as unconstitutional and unenforceable.

In the Appeals Court opinion, the panel reversed the trial court’s decision on all four arguments. The Court held that the ballot initiative did not intrude on the Legislature’s authority to create workers’ compensation laws, limit the Legislature’s authority to enact legislation that would constitute an amendment, or violate the single-subject rule for initiative statutes. However, the Court did hold that Section 7465 subdivisions (c)(3) and (c)(4) violated the separation of powers because they intrude on the court’s ability to interpret the Constitution. Without these provisions, app-based delivery and rideshare drivers can collectively bargain, and the Legislature can pass additional regulations on app-based ridesharing and delivery companies.

While the plaintiffs will likely appeal this decision to the Supreme Court of California, this reversal could signal to other state legislatures that the binary model of employment classifications can be cast aside in favor of a new model that reflects the new employment landscape.

If you have any question regarding this decision or any employment issue, please contact one of Reminger’s Employment Law Liability Practice Group members.

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