Gig Company Plans to Deny California Workers Employee Status and the Right to Organize, for the Moment Knocked Down

Californians could not miss Proposition 22 last year.  A ballot initiative approved in November 2020, it aimed to classify workers for gig companies like Uber, Lyft and DoorDash as independent contractors, not employees.  Without employee status, workers lose numerous protections and the right to organize a union.  Prop. 22 signaled a push for what gig companies call a “third way” of working, a classification of independent gig workers who receive limited benefits without gaining actual employee status.  Gig companies poured more than $200 million into the campaign in favor of Prop. 22—reportedly the costliest ballot measure in California history.

Prop. 22 arose in direct response to a law passed in September 2019 by the California legislature addressing employment status.  Known as “AB 5,” that legislation requires the application of the “ABC test” to determine if workers are employees or independent contractors under the Labor Code, Unemployment Insurance Code, and Industrial Welfare Commission (“IWC”) wage orders.  The California Supreme Court adopted the ABC test in Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903.  AB 5 and later AB 2257 added a new article to the Labor Code addressing these issues (Sections 2775-2787).  The California Labor Commissioner helps answer foundational questions about the ABC test and its applicability.

After Prop. 22 passed in November 2020, a coalition of three ride-hail drivers, one rider, the Service Employees International Union State Council and the Service Employees International Union sued in January 2021, arguing that Prop. 22 is unconstitutional.

In an upset, on August 20, 2021, California Superior Court Judge Roesch found Prop. 22 unconstitutional and that the “entirety of Proposition 22” could not be enforced.  The judge wrote the measure “appears only to protect the economic interest of the network companies in having a divided, ununionized workforce, which is not a stated goal of the legislation.”  In addition, Prop. 22 requires a seven-eighths vote of approval to pass any amendments in the state Legislature, which is unconstitutional, the judge ruled.

Although an appeal is anticipated, gig companies should feel the wind knocked out of them with this ruling, which could force such companies to pay hundreds of millions of dollars in additional labor costs, including paying for health care, sick leave and other benefits if the ruling stands.  The gig companies are determined to appeal, which is expected to cause a stay, or hold, on the judge’s ruling, allowing Prop. 22 to continue as the law for now.  After consideration by the court of appeals, the matter will eventually be decided by the California Supreme Court.

Gig companies argue that nothing will change until the appeal is resolved.  The companies also make sure to say they hold no immediate plans to change how drivers are classified—but, significantly, this decision will undoubtedly change the roll out of similar ballot pushes in other states around the country.

We will keep you updated as the situation unfolds.  For questions regarding employee and independent contractor status, contact your labor counsel.

By Lisl Soto | August 25, 2021

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