An appellate court must sort through several legal interpretations after hearing arguments on whether California should allow Prop 22, the 2020 referendum designed to exempt the state’s gig workers from the AB5 independent contractor classification law.
Voters approved Prop 22 by a hefty margin on Election Day in 2020. It blocked gig drivers, like those from Uber (NYSE: UBER), Lyft (NASDAQ: LYFT) and DoorDash (NYSE: DASH), from being governed by AB5. But Alameda County Judge Frank Roesch ruled that Prop 22 conflicted with the state’s workers’ compensation law and overturned it.
That action was stayed while the appeals process continued, and AB5 is not yet governing gig drivers, even though they were one of the law’s primary targets. (Following a lengthy legal process which for about 2 ½ years kept AB5 away from the state’s trucking sector, it became law in summer 2022 though the original lawsuit that blocked it is still making its way through the courts).
Last Tuesday, in what the judges said was the first time they had heard in-person arguments since the start of the pandemic, the appeal had its day in court, specifically, California’s 1st District Court of Appeal.
While there are numerous intervenors and friend-of-the-court briefs in connection with the appeal, the battle is around the initial case filed by a group of individuals (the lead plaintiff’s name is Hector Castellanos), the Service Employees International Union California State Council and the union by the same name (SEIU).
On the other side is the state of California — which has the task of defending what the voters did in 2020 — and an intervenor/appellant, the Protect App-Based Drivers group and two individuals. (Attorney General Rob Bonta is defending Prop 22 even though as a member of the state Assembly in 2020, he opposed the referendum. He became attorney general in early 2021.)
Protect App-Based Drivers is the Uber/Lyft/DoorDash-funded group that led the battle for Prop 22 and the appeal of Roesch’s decision.
The pro-Prop 22 group’s legal arguments are fairly simple: The state constitution gives tremendous leeway to the right and power of public initiatives in California. And the public has spoken: It wants gig drivers not to fall under AB5, the state’s 2019 law that sets up the ABC test to determine whether workers should be classified as independent or as employees and is seen as putting its thumb on the scale clearly in favor of defining them as employees.
Jose Zelidon-Zepeda, California deputy attorney general, summed up the state’s arguments in his opening statement to the three-judge panel. “This case concerns unprecedented limitations on the initiative power,” Zelidon-Zepeda said. “This power exists side by side and is concomitant with the power of the legislature to enact laws. Despite these well-established principles the court held that Prop 22 violates the [state] constitution.”
The arguments defending the overturning of Prop 22 are more complex. Some of them were delivered by Scott Kronland, an attorney with Altshuler Berzon of San Francisco, representing the SEIU and the individuals listed as plaintiffs in the case.
Kronland agreed that the initiative process “allows private parties to draft all the details of the measure that gets put before the voters.” The initiative can create public policy as either a statute or a constitutional amendment.
But Kronland then said the authors of Prop 22 had “overreached” by including statutory changes that conflict with the state constitution.
One key argument against Prop 22, and in favor of upholding the lower court decision deeming it unconstitutional, came in a friend-of-the-court brief, called an amicus brief, by law professors who filed their comments as a group called, naturally, the California Election Law Professors.
The professors stated in the brief that they weren’t being paid for their work. None of the plaintiffs in the case, according to the brief, “made a monetary contribution intended to fund the preparation or submission of the brief.” Kronland referred to that brief in his oral argument before the court.
Prop 22 includes a provision deep in its text — under Article 9 — that it may be amended by the legislature but only if it reaches a high bar: a seven-eighths vote by the legislature in favor of the change.
“If this court approves the ‘amendment’ limitation on the legislature’s lawmaking power contained in Proposition 22 — a limitation that appears to be unprecedented in the history of California initiatives — it will work mischief and provide a roadmap for future initiatives to upset the delicate balance between legislative power given to the people … and those given to the legislature,” the professors wrote. They described it as a “bait and switch” that would “unconstitutionally prevent or limit the legislature’s ability to legislate” on an unrelated subject affected by amendment provisions similar to what is in Prop 22.
Kronland gave examples of how that might play out in the real world. But professors gave the example of “something like an initiative cutting certain insurance rates but containing a limitation on ‘amendments’ making it nearly impossible for the Legislature to impose penalties for unfair insurance practices.”
Notably, the professors’ brief said it specifically does not deal with the question of whether Prop 22 interferes with the legislature’s ability to enact workers’ compensation laws, the original basis for Roesch’s declaring Prop 22 unconstitutional. But the brief to which Kronland contributed tackles that question directly.
There is a section in Prop 22 that spells out the minimum workers’ compensation that app-based companies must provide their workers. The wording of Prop 22 on the issue of workers’ compensation “[removes] app-based drivers from the complete workers’ compensation system and [grants] them inferior private accident insurance as a substitute,” according to the SEIU brief. It also limits what the legislature can do to override that, the brief said.
“These limitations on the Legislature’s authority cannot be reconciled with [the state constitution] which provides that the Legislature’s plenary power is unlimited,” the brief by the attorneys for the SEIU says.
It also refers to the requirement for a seven-eights vote as “essentially impossible” to achieve.
There also are legal arguments made by the SEIU that Prop 22 sets up rules on permitting collective bargaining under the seven-eights rule governing the legislature’s approval of amendments.
In his comments before the court, Kronland described this provision as “hidden” and said it would “take away the legislature’s power to legislate by majority vote on an issue [collective bargaining] that is not addressed in the initiative.”
Kronland said that action amounted to “sneaking” a provision into the initiative that impacts the legislature’s power to change collective bargaining rules after not mentioning it anywhere else in Prop 22. “We contend that is unconstitutional on its face,” he told the appellate panel.
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