The Aftermath of California’s Proposition 22

Uber, Lyft, DoorDash, and other gig companies who authored and advertised Proposition 22 spent a record $200 million on the ballot initiative to persuade Californians to vote it into law. In the weeks leading up to the 2020 general election, Uber and Lyft bombarded its riders and drivers with endless messaging through its apps and by saturating the television and digital ad space. So when California voters approved Proposition 22 by a margin of nearly three million votes, many likely did so because of its backers’ promise that the measure would institutionalize protections and benefits for app-based workers, all while preserving the flexibility and independence of working in the gig economy. But the glossy advertising belied the limitations and pitfalls of the proposition, and workers are already seeing the dark side of the new law. As California contends with the aftermath of Proposition 22, the path forward for gig economy workers appears murky as ever.

Before Proposition 22, California’s Assembly Bill 5 (AB 5)—passed in 2019—codified the rule from Dynamex Operations West, Inc. v. Superior Court, which the California Supreme Court decided in 2018. Dynamex held that all workers are presumptively classified as employees unless the hiring business demonstrates that (a) the worker is “free from the control and direction of the hirer” in their work; (b) “the worker performs work that is outside the usual course of the hiring entity’s business;” and (c) “the worker is customarily engaged in an independently established trade” or occupation. Under AB 5, workers in California were legally presumed to be employees and thus covered by the Labor Code’s sweeping protections, including minimum wage, overtime pay, and expense reimbursement. Commentators branded AB 5 as the “gig-economy bill,” because it endeavored to give app-based workers presumptive employee status. Passage of the bill led to a legal showdown that saw the state suing gig companies like Uber and Lyft, who refused to comply with the new law and threatened to shut down in California if forced to reclassify their drivers as employees.

Even before AB 5’s passing, gig economy giants like Uber, Lyft, DoorDash, and Instacart were constructing a path to evade classifying their workers as employees: a ballot initiative that would become Proposition 22. The ballot measure, which became the most expensive ballot measure in the state’s history because of the financial support of gig companies like Uber, carved out an exception to AB 5 for gig workers. Proposition 22 classified app-based workers as independent contractors, generally not covered under the state’s labor laws. Additionally, it instituted a minimum wage for app-based drivers based on their “engaged time,” provided some mileage compensation for drivers, set caps on work hours, prohibited workplace discrimination and harassment, and required gig companies to provide healthcare subsidies and accident insurance. The new law also limited local governments’ abilities to set additional rules on rideshare and delivery companies and required a supermajority of the state legislature to amend.

But the promised benefits of Proposition 22 are significantly less than what gig workers would have been entitled to under AB 5. For example, where AB 5 would have afforded app-based workers a suite of entitlements such as workers’ compensation, paid family leave, and unemployment insurance, Proposition 22 provides no such protections. This proved to be an issue at the onset of the Covid-19 pandemic, when many app-based drivers were without work, but were denied regular unemployment insurance benefits because they were classified as independent contractors. California had to create an entirely new program to account for those not eligible for unemployment insurance.

Even the “benefits” of the new law do not seem to go far enough. For example, as a health stipend, Uber offers its drivers who hit a minimum of twenty-five “active hours” per week a maximum of $1,227.54 per quarter—or roughly $400 per month. The amount accounts for only a fraction of the cost of even the lowest level of coverage on the Affordable Care Act exchanges for a family. Furthermore, though the new law promises to tie app-based drivers’ hourly wage to 120 percent of the state minimum wage ($15.60 per hour in 2021, assuming a $13 minimum wage), a study by the UC Berkeley Labor Center estimated that the actual guaranteed figure plummeted to as low as $5.64 an hour when accounting for unpaid waiting time, unreimbursed waiting time costs, underpayment for driving expenses, and payroll taxes. Indeed, some app-based drivers have reported that their pay actually decreased after Proposition 22’s passage, which comes as gig companies began charging customers higher fees to cover the costs of Proposition 22’s mandates.

Whatever benefits Proposition 22 brings come at the enormous expense of full-time employment positions in certain industries. For instance, grocery store chains Albertson’s and Vons announced in January 2021 that they would lay off their unionized in-house delivery drivers and replace them with DoorDash contractors in light of the new law. Other businesses may follow suit. In its campaign against Proposition 22, the California Labor Federation warned voters that the measure would threaten union jobs by expanding the gig economy’s cheaper independent contractor model. In addition, legal commentators remarked that Proposition 22 has actually “added to a legal minefield” instead of clearing a path for California’s gig economy because it remains unclear how the new law applies to AB-5 and Dynamex-related cases pending in state trial courts.

On January 12, 2021, the Service Employees International Union (SEIU) sued the state government in the California Supreme Court, seeking a writ of mandate to invalidate Proposition 22. The petitioners in the suit, Castellanos v. California, alleged first that “by purporting to limit the Legislature’s authority to remove app-based drivers from California’s workers’ compensation system,” Proposition 22 violated Article XIV of the California Constitution, which gives the state legislature “plenary power . . . to create and enforce a complete system of workers’ compensation.” Second, the petitioners asserted that Proposition 22 “invades the authority of the judiciary” by creating its own definition of an “amendment” to the statutory initiative, assuming the role of the courts as “final arbiter of the Constitution.” Finally, the petitioners argued, the measure violated the state constitution’s “single-subject rule” and “grossly deceived the voters, who were not told they were voting to prevent the Legislature” from augmenting the benefits the measure provided. On February 3, the court denied the writ of mandate “without prejudice to refil[e] in an appropriate court,” signaling a refusal to take up the matter directly. On February 11, petitioners filed their petition for writ of mandate in state trial court.

The refiled petition is substantially similar to the Supreme Court petition and brings four causes of action against the state. The petition’s primary argument is that Proposition 22 violates Article XIV of the California constitution, which sets the parameters on the state’s labor laws. The petitioners argue that because the state constitution vests in the legislature “plenary power” to extend worker’s compensation to workers in the state, Proposition 22’s removal of app-based drivers from the benefits of AB 5 was unconstitutional. In support, petitioners relied on cases in which the California Supreme Court cast doubt as to whether even constitutional amendments could alter or impede upon the state legislature’s plenary power to govern over workers’ compensation matters.

Although the petitioners present a compelling argument, they face an uphill battle. Lawsuits against initiatives are common, however courts are reticent to override the will of the voters. But notwithstanding the appetite of the state courts to invalidate Proposition 22, the merits of the case are strong. In the history of California ballot initiatives, never has one reached so far as to build a legal framework governing the wholesale employment conditions of workers of an entire industry and to preclude the legislature and local governments from amending or augmenting that framework. There are also serious constitutional questions about how the new law, in its own terms, defines amendments to it. And indeed, as the Castellanos complaint alleges, though there were ostensibly efforts to educate voters on what they were voting for in approving Proposition 22, the measure’s amendment provision was concealed from voters because it was “not mentioned anywhere in the ballot title and summary, analysis, or ballot arguments regarding the measure.”

Proposition 22, financed almost entirely by gig companies, is a case study in how businesses can purchase new laws. If the courts decline to address its constitutional deficiencies, the worst effects of the new law may be yet to come.

Idrian Mollaneda: California Law Review Associate Editor, Vol. 109, and Berkeley Law Class of 2021.