The GigReporter

The California Supreme Court recently issued its opinion in Castellanos, et al. v. State of California, et al., No. S279622 (July 25, 2024), upholding the constitutionality of Proposition 22, the exemption to the ABC test for independent contractors in the gig economy. This means the door is open for further voter initiatives to change employment classification laws, although there remain questions about restricting the power of the state legislature to enact contrary changes.

In 2019 the California legislature passed the AB5 bill, instituting a strict ABC independent contractor test requiring independent contractors to demonstrate not only the traditional freedom from direction and control, but also that they perform work outside the usual course of the principal entity, and that they have an established trade or business. In response, the big app-based services (Uber, DoorDash, etc.) organized a voter initiative campaign, and Proposition 22 passed in 2020 to institute a different, much more reasonable test for app-based drivers in all legal contexts. App-based drivers would now qualify as independent contractors with respect to the network companies so long as the network company does not (a) prescribe dates, times, of day, or minimum hours to work, (b) require acceptance of any specific service request, (c) restrict drivers from performing services for other network companies, or (d) restrict drivers from any other lawful occupation or business. (See Cal. Bus. & Prof. Code § 7451.) Prop. 22 also included provisions making it difficult or impossible for the state legislature to amend the provisions it enacted. (See Cal. Bus. & Prof. Code § 7465.)

Opponents of Prop. 22 sued to block its implementation, arguing that the state constitution granted the legislature plenary, or absolute, power over the workers’ compensation system (See Cal Const, Art. XIV § 4), and Prop. 22 impermissibly infringed on those powers by instituting a new independent contractor test applicable to workers’ compensation cases and preventing the legislature from changing them. The trial court agreed with the plaintiffs and invalidated Prop. 22 in its entirety. A divided Court of Appeals reversed in part, holding the new test was permissible, but affirmed the trial court’s invalidation of certain provisions restricting the legislature’s power to amend the laws enacted by Prop. 22. The California Supreme Court granted review only on the question of Section 7451 of Prop. 22, the section to establish the new independent contractor test itself, and upheld its constitutionality.

The Court’s opinion reasoned that the constitutional grant of plenary authority to the legislature over workers’ compensation did not make that authority exclusive, and Section 7451 did not infringe on that plenary authority by altering existing workers’ compensation policy. However, the court pointedly avoided making any pronouncement about the legislature’s ability to make an exception to Prop. 22 test, reserving that issue until there is an actual lawsuit challenging a legislative act making app-based drivers employees for the purpose of workers’ compensation. The political leanings of the judiciary in California would suggest the court might be favorable to such arguments.

The specifics of this case have little bearing on SCI clients, as last-mile logistics brokers and owner/operators will usually not qualify as network companies or app-based drivers, but it does mean voter initiatives will have the power to broadly change independent contractor tests. Last-mile brokers probably do not have the clout to successfully sponsor industry-specific initiatives like the app companies did, but a wider transportation industry coalition may be able to.