Hunton Employment & Labor Perspectives

Last month, a judge out of the Alameda County Superior Court ruled California’s Proposition 22 unconstitutional, constituting a significant legal obstacle to this young statute.

Proposition 22 (formally the Protect App-Based Drivers and Services Act, Bus. & Prof. Code, §§ 7448, et seq.) was a ballot initiative passed by a majority of California voters in the November 2020 election, which primarily aimed to classify application-based transportation and delivery companies’ drivers as independent contractors rather than employees. Proposition 22 arose in response to Assembly Bill 5, 2019 legislation codifying the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court, which created a new “ABC” test for determining whether workers are properly classified as independent contractors. (More information on AB 5 can be found in this previous Hunton Employment & Labor Perspectives post.)

In the case at issue, Castellanos, et al. v. State of California, et al. (“Castellanos”), the petitioners—consisting of a number of individuals and labor groups—filed a writ of mandate on February 11, 2021 petitioning the court to compel the State of California and Katie Hagen (the Director for the California Dep’t of Industrial Relations) not to enforce any provisions of Proposition 22 as unconstitutional. The State of California as well as several intervening groups and individuals opposed the petition for writ of mandate.

After the overruling of a demurrer to the petition, the petition came on for hearing on August 20, 2021. A number of amicus curiae briefs were filed. On August 20, the court filed its order granting the petition upon finding Proposition 22 to be unconstitutional and unenforceable in its entirety.

The court based its finding of Proposition 22’s unconstitutionality on three primary grounds. First, the Court discussed how Proposition 22, through Bus. & Prof. Code § 7451, exempts app-based drivers from the “ABC” test and, as a result, removes these app-based drivers from participation in the workers’ compensation system, which does not protect independent contractors. The court, while finding Proposition 22 to be “not an improper exercise by the people of a power entrusted only to the Legislature,” it did find it problematic for another reason—the California Constitution provides that the Legislature has the power to create workers’ compensation laws unlimited by any constitutional provision, but Proposition 22 conflicts with this provision by limiting this power of the Legislature. For § 7451 to be permissible, the court reasoned, California voters would have needed to pass it through an initiative constitutional amendment and not through an initiative statute, which is what Proposition 22 is. Proposition 22 expressly provides that if § 7451 is found unconstitutional, then the entire statute should be stricken rather than severing just this section.

The court next looked at challenges to Proposition 22’s provision allowing the Legislature to amend it only by a statute passed by 7/8 of each house. Proposition 22 defines “amendments” as any subsequent statute that “imposes unequal regulatory burdens upon app-based drivers” (§ 7465(c)(3) or “authorizes any entity or organization to represent the interests of app-based drivers in connection with drivers’ contractual relationships” (§ 7465(c)(4)). The court found these provisions to be “ripe for a facial challenge.” Though the 7/8 amendment procedure is a relatively difficult one, the court still found it to be sound, as it constitutes merely an alternative to the constitutional provision allowing any voter initiative to be amended by a simple majority vote in both houses followed by a popular referendum. The court did, however, find that the provision relating to labor representation (§ 7465(c)(4)) could not survive a facial challenge, as it “unconstitutionally purports to limit the Legislature’s ability to pass future legislation that does not constitute an ‘amendment.’” The Court reasoned that, since Proposition 22 does not directly relate to labor representation or collective bargaining, allowing independent contractors to collectively bargain their contract terms and working conditions would not work to diminish their “independence” or “transmute them into employees.” This provision, however, is severable.

Finally, the court discussed the rule that initiative statutes must be limited to a single “subject.” The court determined the common subject of Proposition 22 to be “protecting the opportunity for California to drive their cars on an independent contract basis, to provide those drivers with certain minimum welfare standards, and to set minimum consumer protection and safety standards to protect the public.” The court found that only one section of Proposition 22—§ 7465(c)(4)—“obliquely and indirectly” deals with collective bargaining rights. In the opinion of the court, this section “is utterly unrelated to [Proposition 22’s] stated common purpose,” as a prohibition on legislation authorizing collective bargaining for app-based drivers “appears only to protect the economic interests of the network companies in having a divided, ununionized workforce, which is not a stated goal of the legislation.”

California law allows for an appeal to be filed within 60 days of notice of the entry of judgment. While the publically available case records show that judgment on the order has not yet been entered, it is likely that the respondents will appeal the ruling once they are able to do so. An ongoing appeal stays enforcement of a court’s ruling, meaning that Proposition 22 will remain in effect during the appeals process.

We look forward to tracking future developments in this case. A decision by the First District Court of Appeal or, ultimately, the California Supreme Court to affirm the trial court’s ruling could have major implications for California employment law.