A California Superior Court judge ruled on August 20 that California's Proposition 22 is Unconstitutional.
The crazy thing is, no one can seem to agree on why. Most news reports I see get it completely wrong. The reasons they give don't line up with what the judge actually wrote in his decision.
Why is everyone getting it wrong? Why is the media misreporting the reason? I can't answer those questions because I can't get inside the heads of the reporters. Is it just easier to give a soundbite answer that you heard from someone else than it is to dig into the opinion itself?
Let's break this ruling down. We'll look at the follwing:
- Some background on Prop 22
- What reason are reporters giving for the decision?
- Breaking down California judge Frank Roesch's decision
- What happens next with this ruling
Some background on Prop 22
Remember that this is a California law. It does not apply to people outside the state. This ruling does not impact gig economy contractors in other states.
California voters voted Prop 22 into law in November, 2020. The main point of Proposition 22 was to state that app-based workers are independent contractors and not employees.
Here's a brief history of how it came about. If you want more detail and opinion about it all, here is an archive of articles about AB5 and Prop 22.
In April 2018, California's state supreme court ruled that the ABC test should determine whether a company can use independent contractors instead of employees. It established three tests:
- The company controls the work of the worker
- The worker does the same type of work as the company
- The worker is doing work not normally considered contractor work.
A worker cannot be an independent contractor if they meet any of those tests.
In 2019, the California legislature responded by passing Assembly Bill 5 (AB5). AB5 basically created a law to match the court ruling.
Most gig economy companies would struggle to pass the ABC test. Some said they can't afford to operate with employees. Uber, Lyft, Doordash, Postmates created a ballot initiative (called Prop 22) that would exempt them from Ab5. They contributed over two hundred million to the campaign for Prop 22, which passed with 58% of the vote in November.
And now we have the ruling from Alameda County Superior Court judge Frank Roesch.
What reason are reporters giving for the decision?
A controversial clause in Prop 22 says the state legislature cannot change the law without a seven-eight's majority in both houses.
A seven-eighths majority requirement seemed extreme to many, so the popular explanation is that this is the reason for the ruling.
Kim Lyons in The Verge wrote that the judge “ruled that it was unconstitutional too that the law required any future amendments to have a seven-eights vote of approval to pass the legislature. (It didn't)
Chauncey Alcorn at CNN wrote that the judge “determined Pop. 22 is ‘unconstitutional' and ‘unenforceable' because a section in the measure limits the ability of future legislatures to amend the law.” (It doesn't)
Both of these are wrong. Completely wrong.
The 7/8 clause had nothing to do with this decision. On the contrary, parts of the judge's ruling actually confirm that section. We'll talk about that more in a bit.
Most articles focus on reasons people already have opinions about rather than dig into what the judge actually said. Maybe it's easier that way. Or perhaps those answers fit the readers' bias. It makes me wonder: Do reporters actually read the stuff they write about?
You can read it yourself. Even with all the legal stuff, it's really not that hard to read. Let's look at the main points in the judge's decision.
Here's why the judge overturned Prop 22.
This is what the decision boils down to. The part of the law that states that an “app based driver and not an employee” was overturned. The judge said it's unconstitutional because it “limits the power of a future legislature to define app-based drivers as workers subject to workers compensation law.”
In other words, calling app-based workers independent contractors is unconstitutional. When you follow the logic and the reasons given, that's about the gist of it.
Here's the judge's own summary:
The Court finds that Section 7451 is unconstitutional because it limits the power of a future legislature to define app-based drivers as workers subject to workers’ compensation law. The Court finds that Section 7465, subdivision (c)(4) is unconstitutional because it defines unrelated legislation as an “amendment” and is not germane to Proposition 22's stated theme, purpose, or subject. Because Section 7451 is not severable from the remainder of the statute, the Court finds that the entirety of Proposition 22 is unenforceable.Judge Frank Roesch's ruling on Prop 22
Let's break that down:
- Section 7451 interferes with the legislature's ability to change the classification of workers
- A smaller section (7465(c)(4) is unconstitutional because it strays away from Prop 22's main purpose
- Both sections are unconstitutional. Section 7451 is central to the proposition, which means the entire proposition is unconstitutional.
Notice that none of this was related to the 7/8 clause.
Let's look at the opinion's reasoning.
Breaking down the three main sections of the Judge's opinion
The judge's ruling had three main sections.
The first part discusses Worker's Compensation (pages 2-4). This issue is the one that shoots down the entire initiative.
Pages 5-10 discuss the amendment clause (Section 7465). This details how an amendment can be made.
The last half of page 10 and most of page 11 gets into a small clause and into how California initiatives can only focus on a single subject.
Let's look at each of the three arguments that the judge uses.
Argument 1: Worker's Compensation
In this section, the judge states that Section 7451 of Proposition 22 “limits the power of a future legislature to define app-based drivers as workers subject to workers' compensation law.”
I think this wording creates some confusion for people. When it says that it “limits the power of a future legislature” it sounds a lot like that's referring to the restriction. As you read the opinion though, you find out that's not what it's talking about.
That's because section 7451 has nothing to do with that clause. In fact, that section doesn't limit anything. All it does is state that app-based workers are independent contractors and then defines the conditions of being such a worker.
Here's my translation of the judge's discussion: Calling an app based worker an independent contractor limits the power of the legislature and is thus unconstitutional.
I don't think that's an oversimplification of the argument. All I'm doing here is substituting a summary of section 7451 for the title “Section 7451.” Let's look more at this whole discussion.
What exactly is Section 7451.
If you read Prop 22 alongside the judge's opinion, a lot of this makes more sense. Rather than just read “Section 7451” look at the proposition and what Section 7451 actually says. You can find a copy of Proposition 22 here.
Read the section. The judge is saying this language limits the power of the legislature.
Protecting Independence. Notwithstanding any other provision of law, including, but not limited to, the Labor Code, the Unemployment Insurance Code, and any orders, regulations, or opinions of the Department of Industrial Relations or any board, division, or commission within the Department of Industrial Relations, an app-based driver is an independent contractor and not an employee or agent with respect to the app-based driver’s relationship with a network company if the following conditions are met:Proposition 22, Section 7451.
There are four sub sections that follow. I'll put a screenshot below. Those subsections basically just put limitations on the network companies (or gig companies like Uber, Doordash, Lyft, Instacart etc) and on what circumstances they can call someone an independent contractor.
Read through all that. Nothing in here puts any limits on anything. How does he come up with that statement? Read the rest of his argument to find out.
Breaking down the argument.
The first paragraph summarizes the argument.
- The California State Constitution gives the legislature the power to create and enforce a complete system of workers' compensation. Page 2, lines 9-11
- Exempting workers from the state workers' compensation program infringes on the Legislature infringes on the Legislature's power to create a complete system of worker's compensation. Page 2, lines 12-13
The next paragraph describes how the legislature has the power to include or exclude workers from the workers compensation system. It also states “Before Proposition 22 went into effect, the Legislature passed an act adopting the “ABC test” for employment status, which was understood to reclassify app-based drivers as employees.”
The judge then explains how exactly section 7451 exempts workers from workers compensation:
- The key provision of the Proposition establishes app-based drivers as independent contractors. Page 2, lines 21-24
- “This section exempts ‘app-based-drivers' from the ‘ABC' test of AB5 that would otherwise be applied.” Page 2, lines 24-26
- “As a result, app-based drivers have been removed from participation in the worker's compensation system, as presently codified, because it protects employees, not independent contractors.” Page 2, line 26 – Page 3, line 1.
Putting the argument into plain English:
Here's a summary of the logic:
California's constitution gives the legislature power to control the worker's compensation system. However, because independent contractors are not subject to workers' compensation, that means that classifying workers as contractors infringes on the legislature's power to control the worker's comp system.
It's not Section 7451 that infringes on the legislature's power. Instead, it's the end result of 7451 (that workers are contractors and not employees) that limits their power.
Just think that over for a bit.
What are the issues with the argument?
If I haven't said this before, I'm not a lawyer. I'm looking at this as a lay person, and I think I have a pretty good sense of logic.
It's the logic of this line of reasoning that makes my head spin.
Prop 22 itself doesn't interfere with the power of the legislature to control worker's comp. Calling them independent contractors is what limits the power.
It seems like the underlying attitude here is that the legislature should have the right to cover everyone. But if you're not an employee, that's taking away their power.
This should be concerning to anyone who is an independent contractor in California (including anyone who passes the ABC test).
Limiting the ability to define app-based drivers as workers.
In his conclusion at the end of the decision, the judge states things a little differently. He says “Section 7451 limits the power of a future legislature to define app-based drivers as workers subject to workers' compensation laws.”
Again, you have to ask, what in that section limits the ability to designate workers?
The part that limits the ability to designate workers is nothing in Section 7451. The issue here is that this whole law is from a ballot initiative.
You see, if voters in California vote a initiative into law, the legislature cannot change the law. The only way to change the law is by a vote of the people.
So yes, it's harder for the legislature to change the designation back to employees. But it's not harder because of anything in the language of the proposition. It's harder because it is a voter-passed proposition.
The legislature still has control over worker's comp. They can still control the laws that govern the system.
For all I know (but I could be wrong) they could adjust or create laws so that contractors can be included in the worker's compensation system.
However, with all that said, I believe there's a huge misrepresentation in the judge's comments here. Prop 22 itself does not limit the legislature. The initiative process is what limits the legislature.
Legislature verses Initiative
There seems to be a tension in this opinion between the right of voter initiative and the rights of the legislature.
However, constitutionality there is no such tension.
The term ‘legislature' in Article XIV Section 4 includes the people acting through the initiative power.Prop 22 decision, page 3, lines 8-9
If a vote of the people is the same thing as the legislature, then a vote of the people isn't limiting the power of the legislature.
However, Judge Roesch seems to stick to his guns here. He discusses this objection (page 2, line 21 – page 3, line 21). In the end he concludes that since a proposition makes it harder to make changes, that difficulty interferes with the legislature's right. Ultimately he concludes that the legislature's right trumps the right of the people.
Even though the vote of the people is constitutionally equivalent to the legislature.
Again, I'm not a lawyer. I feel the need to state this often. However, I feel like this tension between the initiative process and the right of the legislature would be the weakest part of the argument.
Obviously, the final say is in the hands of judges, not people like myself. I have a feeling some judges would see things similarly to me, others not so much. In the end, it all comes down to which ones have the final say.
Does the idea that gig workers were supposedly ‘once considered employees' mean anything?
There's one more bit of nuance here in the Judge's opinion
By exempting workers previously classified as employees from worker's compensation, Prop 22 has infringed on the Legislature's plenary power to create a “complete” system of worker's compensation.”Prop 22 decision, page 2, lines 11-13
I read that and wonder, would the ruling be any different if not for that ‘previously classified as employees” part? What if they never were classified as employees?
But wait. Gig workers never were employees. Were they?
Where the judge is coming from here is that AB5 preceded Prop 22.
Before Proposition 22 went into effect, the Legislature passed an act adopting the ‘ABC test' for employment status, which was understood to reclassify app-based drivers as employees.”Prop 22 decision, page 2, lines 17-20
By that reasoning, there were several months that gig workers were supposedly ‘classified as employees.'
Does this mean that the legislature lost power when the classification was changed?
I think a more valid question is: were they ever classified as employees?
The judge's argument is the ABC test was “understood to reclassify app-based drivers as employees.”
Was it? Where is that stated in AB5? The purpose of the law was to define conditions where a contractor could or could not be used.
Reclassifying workers may have been the goal of those who wrote the law. However, when it's not the stated intent, it's very hard to support the idea that this was understood.
Proposition 22 included language that stated that AB5 did not apply. The judge's opinion upheld that section. That would seem to mean that drivers never were employees.
Argument 2: Amendments
Now we get into the part of Prop 22 that includes the seven-eights vote thing. However, we find out that that clause was never a reason in the decision.
Here's a summary of what goes on in this section.
- By default, the legislature needs a vote of the people to change or override an initiative.
- However, an initiative can include conditions where the legislature can make changes without such a vote. Page 5, lines 4-12
- Proposition 22 added provisions that require a seven-eights vote in both chambers to amend the act. Page 5, lines 13-17.
- Proposition 22 included definitions of what constitutes an amendment. Page 5, line 14 – Page 6, line 2
- These provisions can be challenged. Page 6, lines 3-12
- The judge upholds most of section 7465. Page 6, lines 13 – page 9, line 18.
- Section 7465(c)(4) limits passing laws about collective bargaining even though such laws do not necessarily conflict with Prop 22. Page 9, line 19 – page 10, line 7.
- Striking that section down does not make the rest of the act unenforceable. Page 10, lines 8-10.
Putting the opinion into plain language.
Section 7465 defines the amendment requirements for Prop 22. Judge Roesch upheld all but a small subsection.
To understand what's happening here, remember that by default, the legislature cannot amend initiatives.
At all. Not even with a 100% vote.
You can only change or override an initiative one of two ways:
- A vote of the people
- Making allowances in the initiative for such amendments.
Section 7465 makes those allowances. It says the legislature CAN change the law if both houses pass that change with a 7/8 majority.
There were some objections to several parts of Section 7465. However the judge's ruling upholds most of that section. The one that didn't hold up was Section 7465(c)(4).
Any statute that authorizes any entity or organization to represent the interests of app-based drivers in connection with drivers’ contractual relationships with network companies, or drivers’ compensation, benefits, or working conditions, constitutes an amendment of this chapter and must be enacted in compliance with the proceduresProposition 22 Section 7465(c)(4).
governing amendments consistent with the purposes of this chapter as set forth in subdivisions (a) and (b).
This section says any law that allows a third party to represent app-based drivers is an amendment to Prop 22. Therefore, passing such a law requires either a vote of the people or a 7/8 vote in the legislature.
The judge decided that it's possible to have such a law without infringing on the purpose of Prop 22, and this section was out of line.
How did the judge's opinion actually uphold the 7/8 clause?
Go back to our earlier discussions: The legislature cannot change an initiative. Not even with a 100% vote.
The only exception is if the initiative makes allowances. That's what Section 7465 does:
As partof ts power to allow amendment without a further vote of the people, an initiative statute can define the scope and conditions that must be met to adopt an amendment without a subsequent referendum.Prop 22 decision, page 8, lines 1-3
The 7/8 vote is an allowance. It is less restrictive than the default. Without this clause, the legislature couldn't make a change at all.
There was an objection that the 7/8 requirement is too stringent. The judge replied “however interesting, this point is irrelevant to the legal analysis.” Page 6, lines 23-24.
There is no requirement for how such allowances are made. Every proposition can include its own definition. Judge Roesch concludes, “All Section 7465 provides is another way to amend the initiative statute.”
Even further, the judge confirmed the provision:
the Court should narrowly construe the “seven-eighths majority” and “consistency” requirements only to the non-referendum procedures in Section 7465, subdivisions (a) and (b).Judge Roesch's opinion, page 7, lines 8-10
In other words, the seven-eights majority requirement DOES apply to portions of the section.
On it's face, 7/8 majority seems extreme. The opinion said it's “difficult to the point of near impossibility.” However, the 7/8 portion of the section was never struck down nor was it part of the judge's overall decision.
Argument 3: Single Subject
This was pretty brief.
- California initiatives can only be about a single subject. Page 10, lines 12-18
- Proposition 22 declares its intent to protect the rights of app based drivers to be contractors. Page 10, lines 19- Page 11, line 14
- No other part of the proposition deals with collective bargaining, thus the section 7465(c)(4) is a second subject and unconstitutional.
This one seems pretty straight forward. This is the same section that we talked about above. It says that any law that ties collective bargaining to app-based workers is an amendment.
None of the rest of Prop 22 was about collective bargaining. This wasn't part of the stated goal of the legislation. Therefore, the judge decided that this section introduces a second topic.
The combination of that decision and the one in the Amendment argument meant that the 64 word section about collective bargaining is unconstitutional.
Wrapping up the decision
Everything in Section 7564 other than (c)(4) stood. The opinion upheld the 7/8 voting requirement. However, because the collective bargaining topic in (c)(4) is a different topic than the rest of the act, that subsection is unconstitutional.
That portion is severable. In other words, you can take it out of the initiative without impacting the rest of the law.
However, the judge's decision about Workers Compensation is a different story. That one declares that section 7451 is unconstitutional.
Why does he call it unenforceable? The answer is in a clause in Prop 22 itself.
if any portion, section, subdivision, paragraph, clause, sentence, phrase, word, or application of Section 7451 of Article 2 (commencing with Section 7451), as added by the voters, is for any reason held to be invalid by a decision of any court of competent jurisdiction, that decision shall apply to the entirety of the remaining provisions of this chapter, and no provision of this chapter shall be deemed valid or given force of lawProposition 22, Section 7467 (b)
According to Prop 22 itself, without section 7451, this law is no good. The whole law centers on that declaration that app-based drivers are independent contractors. That makes it what Judge Roesch calls “not severable.” The rest of the law has no meaning if you separate it from that section.
What happens next with this ruling?
First off, nothing changes.
This is a lower court decision. Prop 22 remains in effect. That won't change until the appeals process is exhausted. Gig companies have already promised an immediate appeal.
There will probably be two appeals, based on what I've read about the court structure in California. The Court of Appeals will likely hear it first. You can guarantee that decision will be appealed by whoever loses. Then the California supreme court will decide.
Once they decide, the decision is final.
If the final ruling is that Prop 22 is still unconstitutional, we'll be right back where we were in October 2020.
No one becomes employees immediately. It didn't happen when AB5 became law. It won't happen now.
Remember, AB5 doesn't make anyone an employee. It just defines the ABC test. Even when the test is applied and the courts decide against the gig company, no one becomes an employee. That only means that the gig company can no longer use contractors.
It's still up to them whether to actually hire employees, or to leave California.
Uber and Lyft drivers will be impacted first, because their court cases are further along. There are no rulings against Doordash, Grubhub or Instacart, so the process will take longer with them.
Will this opinion be overturned?
I don't know.
All of my commentary is based on what I think, but I'm not a lawyer.
I don't expect the decision to change on 7165(c)(4). I think the judge made a compelling case there.
However, that only takes out 64 words. The rest remain, so it's the part about Section 7451 that really matters. In my opinion, the judge's reasons are shaky, for reasons I discussed.
It depends more on how the judges in the supreme court see things. In the end, they have the final word.
There's one thing you should remember. This whole ABC test started with a state supreme court decision.
In my opinion, that decision overstepped the court's power. The legislature is supposed to write the laws, and the courts are supposed to interpret them. That didn't happen with the Dynamex decision. The court decided that the ABC test should be used, essentially writing the law.
I feel like the court has a vested interest in the ABC test. That makes me think that this ruling will stand.
What should independent contractors do in California?
If this ruling stands, independent contracting as we know it in California will go away. These gig companies aren't going to spend that much money on Prop 22 if they think they can pass the ABC test.
However, all of this will take time. Months, maybe a year or more.
Be prepare for changes. Don't wait until the final appeal hits the news. Be ready and have an exit plan. Now is the time to make some decisions. That way you're ready if the ruling stands, and you're okay if it gets overturned.
If things change, gig companies will terminate the contracts. If they decide to stay in California, they'll hire their employees from scratch.
There's no guarantee you'll be hired, or that they'll stick around. Back in October, Uber and Lyft were threatening to leave the state.
If employment doesn't appeal, start looking for what you would do next. While you have some time before things change, don't wait. Start thinking about it now. What would you want to do? Do you enjoy self-employment? Start thinking about other ideas and opportunities.
Now's the time to start building whatever is next. If you don't know what is next, now's the time to explore options.
California politics are weird. That's even true of the courts. It's hard to say whether this ruling will stand, however I have a feeling it will.
If it does, there's time before it all hits the fan. Just don't wait until the last moment to figure out what you'll do.