On August 20, 2021, a California Judge ruled that Proposition 22 (Prop 22), a ballot initiative passed last November that classified app-based drivers as independent contractors who were not entitled to benefits that are legally required for “employees,” as unconstitutional. The Judge ruled that Prop 22 unconstitutionally limited the plenary power of the California legislature to define app-based drivers as workers subject to the workers’ compensation law. Therefore, the Judge found that Prop 22, in it’s entirely, is unenforceable. Proponents of Prop 22 plan to appeal the decision. While the case makes its way through the court system, Prop 22 will remain in force.
In late 2019, the California legislature passed Assembly Bill 5 (“AB5”), which codified the “ABC” test for determining whether an individual was legally considered an “independent contractor” rather than an “employee” of a business. AB5 was widely considered to be aimed at companies that classified a large part of their workforce as independent contractors, commonly referred to as “gig workers.” Under the AB5 “ABC” test, many believed that app-based drivers would legally be reclassified as “employees” that were entitled to health care, unemployment insurance, overtime pay, workers’ compensation, minimum wage, and other benefits that they were not entitled to as independent contractors. AB5 took effect on January 1, 2020.
AB5 was immediately opposed by app-based companies, who funded a ballot initiative (Prop 22) that would exempt app-based drivers from the “ABC” test of AB5. Instead, under Prop 22, app-based drivers would be considered “independent contractors” for purposes of the California Labor Code, the Unemployment Insurance Code, and the Department of Industrial Relations if certain conditions were met. In turn, Prop 22 provided drivers with certain medical benefits and protections. We discussed Prop 22’s impact on employee benefits in our prior blog.
In November 2020, Prop 22 was passed by California voters.
In January 2021, a group of app-based drivers and the labor union Service Employees International Union (SEIU) filed a lawsuit alleging that Prop 22 was unconstitutional because it limited the state legislature’s “plenary” and “unlimited” power to create a complete system of worker’s compensation by exempting workers previously classified as employees from workers’ compensation.
The California Constitution vests the California legislature the “plenary” and “unlimited” power to create and enforce a complete system of workers’ compensation, including the ability to include or exclude workers from the worker’s compensation system. Section 7451 of Prop 22 exempts “app-based drivers” from the “ABC” test that would otherwise be applied to determine their status as employees. As a result, Prop 22 removes app-based drivers from the workers’ compensation system because workers compensation only applies to employees and not independent contractors.
An Alameda Superior Court Judge agreed with the plaintiffs and found Prop 22 unconstitutional because it limited the power of the future legislature to define app-based drivers as employees subject to workers’ compensation law. Further, the court found that Section 7451 of the law was inseverable from the remainder of the statute, and therefore the entirety of Prop 22 was unenforceable.
While the ruling acknowledged the power of the people to restrict or qualify the “plenary” power constitutionally granted to the legislature, the Judge asserted that they must first do so by constitutional amendment, not by initiative statute.
Proponents of Prop 22 plan to appeal the Judge’s ruling. In the meantime, Prop 22 will remain in force while the decision is being appealed. It is likely that any appellate court decision will also be appealed by the parties and the case will be mired in litigation for the coming years.