Gig Companies Spent $200 Million to Write Their Own Labor Law. The State Supreme Court Could Throw It Out

The California Supreme Court will hear oral arguments next Tuesday in a case that could change the fate of more than 1 million gig workers in the state — and perhaps how we hail rides, order takeout or get groceries delivered.

Four years ago, voters approved Proposition 22, a ballot measure sponsored by Uber, Lyft, DoorDash and Instacart that allowed the companies to continue treating their ride-hailing drivers and delivery workers as independent contractors. Proposition 22 was the industry’s response to Assembly Bill 5, a state law that codified a state Supreme Court decision that would have required the companies to classify those workers as employees.

Treating gig workers as independent contractors is central to the business model of the California-based companies, the middlemen who gave rise to the on-demand, app-based gig economy that has permeated our culture. The companies are fighting to hang on to that model, saying it helps them provide gig workers with flexible schedules. Critics say it lets the companies avoid paying employment taxes and shift financial responsibility to their workers and customers, plus governments.

In 2021, a Superior Court judge invalidated Proposition 22, saying it limits the Legislature’s constitutional power to create and enforce a complete workers’ compensation system because it declares gig workers independent contractors ineligible for the benefit. While the state Supreme Court will be considering this narrow issue, because of a clause in the initiative, it’s possible the whole law will be thrown out because of it.

The gig companies appealed the judge’s decision, and a state appeals court ruled 2 to 1 in their favor last year. SEIU California then appealed that decision, and the state’s highest court agreed to hear the case.

Fifty-eight percent of voters passed Proposition 22 after gig companies spent more than $200 million on the campaign. After it became law, app-based platform workers became eligible for some benefits, such as guaranteed weekly earnings of 120% of minimum wage, health care stipends, and occupational accident and accidental death insurance.

Although industry-backed polls show many gig workers voted for Proposition 22 and have benefited from some of its provisions, gig workers continue to complain about their pay and working conditions.

In April, drivers protested, as they have many times, at Uber and Lyft headquarters in San Francisco. They said they were there because of low wages, safety concerns and “deactivations” — getting kicked off the apps and losing their ability to work, sometimes suddenly and without knowing why.

“It’s hard for drivers to make ends meet,” said Cesar Palancares, a field organizer for Bay Area-based worker-advocacy groups Gig Workers Rising and Working Partnerships USA, and a leader of the protests. Nowadays, he said, “Drivers often have to work 12 hours to earn what they used to earn working six or seven hours.”

Palancares said pay is still low because workers’ eligibility for the earnings guarantee is based on the time they agree to take on a gig and the time they spend on that ride or delivery, but not on the time they spend waiting for a gig.

Los Angeles-based Rideshare Drivers United is so concerned about gig-worker pay that it plans to push for pay standards, like those in New York City and Seattle, even if Proposition 22 is overturned.

“We want to build pay regulation on top of labor rights, specifically catering to how we work in this industry,” said Nicole Moore, president of Rideshare Drivers United, which plans to advocate for legislation or ordinances that would establish a rate card with a minimum rate based on miles and minutes driven.

“What we’ve learned from NYC is you can set a rate card, and you can have data from the companies that ensures that pay is high enough so your expenses are being covered,” Moore said.

The gig industry’s current estimates for average worker earnings differ widely from labor groups’ estimates: A DoorDash spokesperson said delivery workers’ average earnings were $36 an hour last year; an Uber spokesperson said its drivers’ average earnings were $33 “per utilized hour” as of the fourth quarter of last year. Industry-wide, Molly Weedn, a spokesperson for Protect App-Based Drivers + Services, said that in 2022, ​​California drivers earned an average of $34.46 per “active hour,” including tips, an increase of 26% compared with pre-Proposition 22 times.

However, labor groups and academics have long disputed those figures, including in the legal briefs they submitted before the Supreme Court hearing because companies do not count the time gig workers wait for an actual ride or delivery. They also say the industry figures don’t factor in workers’ costs for fuel, maintaining their vehicles, health care costs — not all gig workers are eligible for the stipends — and more. A study by National Equity Atlas and others, done in 2021 after Proposition 22 took effect, found that the workers’ average earnings were as little as $6.20 an hour.

Oral arguments’ focus

The SEIU and the four gig-worker plaintiffs will argue that the state constitution grants the Legislature “unlimited power to enforce a complete workers’ compensation system.” The Legislature already spoke when it passed AB 5, they say. So they contend that “the Legislature’s exercise of that power can be withdrawn only by a constitutional amendment.”

The interveners and appellants — the gig companies and the state, which is required to defend the law — will argue that the Legislature’s “plenary,” or absolute, power over workers’ comp is not exclusive. And they will say no subject is beyond the scope of the initiative process.

“The legal issue is actually pretty straightforward,” said Kurt Oneto, a lawyer for the gig companies. Oneto said a constitutional amendment adopted by California voters in 1918 that gave the Legislature power over workers’ comp “unlimited by any provision” in the constitution was “only enacted to prevent courts from invalidating workers’ comp” — not to limit voters’ power over it.

This decision could set a national precedent in the nagging issue of worker classification. So, despite the narrow focus of what the Supreme Court is set to consider, a wide array of legal briefs in the case rehash the pros and cons of the gig economy.

Proposition 22 proponents’ arguments

Those urging the court to uphold Proposition 22 stress that the Legislature doesn’t have exclusive reign over workers’ comp. They say the people — through the ballot initiative — have just as much say. They also say the gig economy helps marginalized workers and communities.

• Former state Sens. Robert Timothy Leslie and Stephen James Peace: Based on their experience as lawmakers, they say “the state Legislature is far from powerless when it comes to amending an initiative” and that lawmakers can amend Proposition 22 if they want.
• David A. Carrillo and Stephen M. Duvernay (California constitution scholars): “Excluding workers’ compensation (or any subject) would partly invalidate the electorate’s lawmaking power by creating a new subject matter exemption from the initiative.”
• Crum & Forster, a holding company of various insurance underwriting companies: Occupational accident insurance, which is based on individual use, is cheaper to provide than full workers’ comp, which is charged per employee and based on a formula. The former makes more sense for gig workers because many of them work part time. “Because the risks confronted by app-based drivers are few and easily defined, premiums need not reflect potential exposure to the myriad risks confronted by employees working in offices, factories, warehouses, agriculture, and other occupations.”
• Independent Drivers Alliance of California: This group of 400 gig workers said the benefits under Proposition 22 are “something that many of them have come to expect and even need.”
• Citizens in Charge and The Initiative and Referendum Institute at the University of Southern California: “Large corporations are not the only type of special interest that can forestall the will of the People.” They say the SEIU is a special interest that influenced the Legislature to pass AB 5.
• California Asian Pacific Chamber of Commerce, California Hispanic Chambers of Commerce, NAACP California Hawaii State Conference, National Action Network Los Angeles, National Action Network Sacramento Chapter Inc., and National Diversity Coalition: The independent contractor model provides not just marginalized workers with earning opportunities, it also helps “the provision of transportation, food, and delivery services to communities of color that have been historically underserved.” If Proposition 22 is overturned, they say gig companies will reduce the number of gig workers on their platforms, and there will be fewer earning opportunities for “communities of color,” which, according to a Pew survey, are “more likely to have earned money in the gig economy than White counterparts.”

Proposition 22 opponents’ arguments

Those asking the court to declare the law unconstitutional warn of a slippery slope. They say allowing corporations to carve out their own labor laws could lead to a continued gig-ification of work in other industries, which will affect not just the workers who will largely be without a safety net but also the government and the rest of society.

• State Sen. Dave Cortese and Assemblymember Liz Ortega: The “minimal insurance benefits” offered by Proposition 22 — occupational accident insurance and accidental death insurance — are not a complete workers’ comp system, and “the wholesale removal of app-based drivers from the system established by the Legislature over the past century runs contrary” to the power the state constitution gives lawmakers to enforce a complete workers’ comp system.
• California Applicants’ Attorneys Association: The group also said the occupational accident insurance offered under Proposition 22 is limited compared to what workers’ comp offers: medical treatment; temporary or permanent payments depending on the injury; and supplemental job retraining benefits. “The likely result is more injured app-based drivers will seek benefits through public systems” like state or federal disability systems.
• City and County of San Francisco, the City of Oakland, the City of San Diego, and the County of Santa Clara: “The wholesale elimination of worker protection laws (including minimum wage protections for all hours worked, overtime, and expense reimbursement laws) can mean the difference between needing to visit a food pantry or not.” The municipalities say they administer such programs, and therefore taxpayers end up subsidizing “what the law asks employers to contribute through wages and benefits.”
• Law professors Sameer Ashar, Veena Dubal, Catherine Fisk, Charlotte Garden, Joseph Grodin, William B. Gould IV, Stephen Lee, Leticia Saucedo, Reuel Schiller, Katherine Stone, and Noah D. Zatz: This group writes that the law lacks a “provision for an administrative body or system to adjudicate claims or disputes. Instead, as is well-known, they are consigned to asserting their claims in the companies’ secret arbitration system.”
• National Employment Law Project, California Labor Federation, Rideshare Drivers United, Gig Workers Rising, Asian Americans Advancing Justice – Asian Law Caucus, Asian Americans Advancing Justice Southern California, PowerSwitch Action, Worksafe, Action Center on Race & the Economy, the Economic Policy Institute, Bet Tzedek, and the California Immigrant Policy Center: Gig workers have few legal protections against opaque, “powerful, algorithmically-driven pay systems, and ‘the possibility remains,’ in the words of one scholar, that on-demand companies… (are offering) vulnerable workers lower wages based on their willingness to accept work at lower prices.” They cite a recent Uber earnings call during which its CEO said the company is “offering the right trip at the right price to the right driver.” Along the same lines, the fact that gig workers are from marginalized groups and communities is unsurprising; they say: “It is no accident that Prop. 22 reinforces and legalizes a second-tier workforce (composed) disproportionately of people of color.” They also cite federal data that shows app-based driving is “one of the most dangerous jobs in America” that includes risks of violence, harassment, injuries and even death on the job.
• Teamsters Locals 396, 542 and 848 and Los Angeles County Federation of Labor, AFL-CIO: “Already, a growing number of secure jobs across the state are being replaced by app-based drivers — including jobs where Amici Curiae have fought for decades to ensure a living wage and strong benefits.” Those include delivery drivers formerly employed by Albertsons.