In a Victory For App-Based Companies Like Uber, Lyft, and DoorDash, A California Court of Appeals Upholds Most of Proposition 22

In a recent opinion, a California Court of Appeals upheld most of Proposition 22—a 2020 ballot measure that allows app-based companies like Uber Technologies, Inc., Lyft Inc., and Door Dash, Inc. to classify drivers as independent contractors (instead of employees).  In its 3-2 decision, the Court upheld California voters’ ability to exclude app-based drivers from workers’ compensation benefits.

Assembly Bill 5 and the ABC Test

In 2019, the California legislature passed Assembly Bill 5, which codified the ABC test for determining whether a worker is an employee or an independent contractor.  Under the ABC test, a worker is presumed to be an employee.  A worker is an employee (and not an independent contractor) unless:

• The worker is free from the control and direction of the hiring entity in connection with the performance of work, both under the contract for the performance of work and in fact;
• The worker performs work that is outside the usual course of the hiring entity’s business; and
• The worker is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.

Under the ABC test, a worker is presumed to be an employee and it is challenging to classify workers as independent contractors.

Proposition 22 and the Protect App-Based Drivers and Services Act

In November 2020, California voters passed by referendum Proposition 22, the Protect App-Based Drivers and Services Act (which amended California’s Business and Professional Code §7448 et seq.) Proposition 22 provides that “[n]otwithstanding any other provision of law, including, but not limited to, the Labor Code…an app-based driver is an independent contractor and not an employee or agent with respect to the app-based driver’s relationship with its network company if [certain] conditions are met.”

Trial Court Declares Proposition 22 Invalid

The Service Employees International Union (“SEIU”) joined several drivers in filing a motion petition for writ of mandate to declare Proposition 22 invalid.  In August 2021, Judge Frank Roesch from the Alameda County Superior Court held that Proposition 22 is “constitutionally problematic” because it restricts the legislature’s ability to regulate workers’ compensation.  Judge Roesch also held that Proposition 22 violated the constitutional requirement that initiatives be limited to a “single subject.”

California Court of Appeals Finds Bulk of Proposition 22 is Constitutional

In December 2022, a three judge panel for California’s First District Court of Appeals heard oral argument in San Francisco.  On Monday, March 13, 2023, Justice Tracie L. Brown released her 2-1 majority opinion.  Justice Brown held that the California Constitution does not give the legislature exclusive authority over the workers’ compensation law, but rather gives such authority to the legislature or the voters.

The court agreed that Proposition 22’s provision addressing collective bargaining could not be placed in an amendment and must pass by a seven-eighth vote in the Legislature.  Nevertheless, the Court concluded that it could invalidate that portion of Proposition 22 without striking down the entire law.

Justice Streeter wrote a dissenting opinion and held that he would affirm the judgment of the trial court but would “prefer to go further” and “invalidate Proposition 22 in its entirety.”

This case represents a notable win for app-based companies in California like Uber, Lyft and DoorDash who can continue treating drivers as independent contractors (instead of employees), as well as a victory for gig drivers in California that seek to retain control and autonomy over their work.    The case is expected to be appealed to the California Supreme Court.

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