California Gig Worker Ruling Extends Costly, Fierce Legal Fight

A long-running bid by Uber Technologies Inc., Lyft Inc., and other gig companies to treat their California drivers as independent contractors likely will be ultimately decided by the state’s Supreme Court despite a recent significant legal win at a state appeals court.

A divided ruling handed down Monday largely backed a voter-approved initiative that a coalition of gig companies bankrolled for more than $200 million, setting the stage for another round of judicial review that will determine the job status of hundreds of thousands of California app-based drivers, legal observers say.

The high-stakes fight over the measure, known as Proposition 22, has big financial implications for gig companies. Classifying drivers who transport passengers and deliver food as employees would put them on the hook for millions in unpaid wages, taxes, and other benefits for drivers, and upend the gig economy’s entire business model.

Gig companies and others behind the measure passed in 2020 lauded the ruling. Labor unions and other opponents decried it.

Representatives for those who oppose Prop. 22 haven’t confirmed whether a high court petition will be filed. Kurt Oneto, a partner at Nielsen Merksamer Parrinello Gross & Leoni LLP representing proponents of the measure, said at a virtual press conference Tuesday he “can’t speculate” whether the plaintiffs will petition for review.

But many are expecting an appeal because the case has significant consequences for both sides, and the ruling by the appellate court teed up constitutional issues that need further clarity from the state’s high court.

“I don’t think the buck will stop here,” said Samantha Prince, a law professor at Pennsylvania State University.

“The California Supreme Court may close the loop on this,” she said, noting that the dispute was “set in motion” by the high court’s three-part legal test issued in 2018, which makes it harder for employers to classify workers as contractors.

State lawmakers codified the court’s decision, a move that prompted a coalition of gig companies to push for a carveout in exchange for offering limited benefits to drivers such as health-care subsidies and minimum earnings.

Constitutional Clash

In a victory for organized labor, the appeals court invalidated a portion of the ballot initiative that required a seven-eighths majority vote for lawmakers to enact amendments such as allowing gig workers to unionize. This provision violates the separation of powers principles, according to the decision.

But worker advocates criticized the divided three-judge panel for allowing a provision limiting the legislature’s authority over workers’ compensation for gig drivers to stand. It’s unconstitutional and seizes too much control from lawmakers, they argued.

“When gig companies can spend over $200 million to pass a law that violates our state’s constitution instead of investing in workers, it’s clear that California needs better safeguards for our democracy,” David Huerta, president of Service Employees International Union California, said in a statement.

Huerta accused those behind Prop. 22 of “hijacking the ballot referendum process and overturning laws that give workers a voice on the job and protect the health of our communities.”

The case is ripe for further review because the appeals court’s decision “seems to favor initiatives and referendums over the power of the legislature. That’s a surprising position for the court to take,” said Seth Harris, a veteran Democratic US Labor Department official, who most recently served as a labor adviser to President Joe Biden.

App-based drivers subject to Prop. 22 are “caught up into a political battle over which should govern the state of California: initiatives and referendums or the Legislature,” added Harris, now a law and policy professor at Northeastern University.

The ruling has implications “well beyond Proposition 22 and could shape how laws are made going forward,” he added. “That’s too big of an issue for the Supreme Court to allow, in theory, an appellate court to decide.”

Supporters of the measure maintained that Prop. 22 allows app-based drivers to retain their independent status and flexibility to decide their own work hours and earn an income. A ruling invalidating the measure would undermine the will of an overwhelming majority of California voters, they said.

“Listen to us, not those special interest” groups, Cora Mandapat, a California rideshare driver, said at a virtual press conference Tuesday organized by the Protect App-Based Drivers and Services coalition, which that backed the initiative.

“I’ve been here since the beginning. And if there’s more to fight out there, we will be back,” Mandapat said.

But Erin Hatton, a professor at the University at Buffalo specializing in gig-work, said the ruling upholds a system that exploits workers who deserve full benefits.

This a significant “loss for workers and worker rights,” she said.

Ripple Effect

A victory for gig companies at the state Supreme Court could be felt in other parts of the country.

The issues in the case focus on matters specific to the California constitution, but gig companies could nonetheless use their success in California to build momentum and inform efforts for similar measures in states that have adopted the three-factor ABC test, which tends to classify most workers as employees, some attorneys said.

Uber, Lyft, and other gig companies unsuccessfully sought to put an identical measure on the ballot in Massachusetts, but the state’s high court threw it out last year. Massachusetts Gov. Maura Healey, then-state attorney general, separately has a pending driver misclassification suit against Uber and Lyft on behalf of the state.

“I think all eyes are going to be on the California Supreme Court for a while to see what happens next,” said Prince, because some states have been considering whether to adopt the ABC test. “What happens in California will help other states decide what to do.”