Skip to main content

A ride share car displays Lyft and Uber stickers on its front windshield in downtown Los Angeles, on Jan. 12, 2016.Richard Vogel/The Associated Press

Emboldened by a California election victory that maintained the independence of their drivers last year, gig economy companies like Uber Technologies Inc. and Lyft Inc. have in recent months accelerated a push for what they call a “third way” of working, a classification of independent gig workers who receive limited benefits without gaining employee status.

But that plan was upended Friday evening by a California judge who ruled that the ballot initiative backed by Uber, Lyft, DoorDash and other so-called gig economy companies violated the state Constitution. It was a potential setback for the companies and a victory for labour organizers and drivers who argue they are being treated unfairly.

Here is an explanation of this long-simmering fight and what happens next:

Wasn’t this issue settled in California?

Uber and Lyft have long said their drivers are independent contractors, which allows the companies to avoid the expense of health insurance, unemployment insurance, sick leave and other employment benefits.

Some state legislatures, federal officials and legal experts, however, have maintained that drivers are employees under the law, and that Uber and other gig companies owe them the full protections that come with employment.

In 2019, California legislators passed a law requiring companies like Uber to employ their drivers. The state attorney-general sued Uber and Lyft to enforce the law, and the companies responded by threatening to leave the state.

Uber, Lyft and DoorDash poured more than US$200-million into a ballot measure, known as Proposition 22, that would allow drivers to remain independent contractors, while companies offered them limited benefits. Proposition 22 was approved in November with about 59 per cent of the vote.

A coalition of ride-hail drivers and labour groups sued in January, arguing that Proposition 22 is unconstitutional. A month later, the California Supreme Court declined to hear the case, seemingly putting an end to the challenge. But the group refiled its petition in a lower court, leading to last week’s ruling.

Why did the judge find Proposition 22 unconstitutional?

The decision by Judge Frank Roesch of California Superior Court in Alameda County had three main findings.

The first was that Proposition 22 carved gig workers out of the pool of employees eligible for workers’ compensation in the event of an injury or other workplace incident. But the state legislature has a right under California’s Constitution to set and control workers’ compensation.

Justice Roesch wrote in his decision that Proposition 22 “limits the power of a future legislature to define app-based drivers as workers subject to workers’ compensation law” and is therefore unconstitutional.

Second, Proposition 22 included several unusual provisions designed to prevent the legislature from making significant changes to the law.

The measure requires the legislature to reach a seven-eighths majority to make any changes to the law, a supermajority that is considered unattainable. It also requires that any changes be “consistent” with Proposition 22, blocking the legislature from drastically altering or reversing the law.

If the independent status of drivers was changed, the rest of Proposition 22 would be invalid as well. So if the drivers were declared employees, Uber and Lyft could back away from the higher wages, private accident insurance and other benefits offered under Proposition 22.

Because the workers’ compensation issue could not be separated from the rest of Proposition 22, Justice Roesch wrote “that the entirety of Proposition 22” could not be enforced.

Finally, the judge also took issue with a clause in Proposition 22 that prevents gig workers from unionizing. Proposition 22 said any future law that gave an organization the right to collectively bargain for drivers’ benefits, compensation or working conditions would be considered an amendment and would be subject to the seven-eighths majority rule. Justice Roesch found that provision to be unconstitutional because a collective bargaining law ought to be considered “unrelated legislation.”

Who intervened to block Proposition 22?

Three ride-hail drivers and one rider are involved in the lawsuit, along with the Service Employees International Union.

“We’re going to keep putting a spotlight on how gig corporations are putting their profits before their workers,” Michael Robinson, a Lyft driver from Loma Linda, Calif., said in a news conference Monday.

Who is on the other side of the courtroom?

Although the lawsuit focuses on how app-based companies treat their workers, the coalition of drivers and labour groups is suing the state of California and the Department of Industrial Relations, which administers workers’ compensation.

The California attorney-general’s office is now defending Proposition 22 – an awkward turn of events, since the attorney-general sued Uber and Lyft before Proposition 22 was approved in an attempt to force the companies to employ their drivers.

The gig economy companies can still weigh in. Their coalition, Protect App-Based Drivers and Services, is a respondent in the lawsuit and has said it plans to file an appeal.

“This outrageous decision is an affront to the overwhelming majority of California voters who passed Prop. 22,” said Geoff Vetter, a spokesman for the coalition. “We will file an immediate appeal and are confident the Appellate Court will uphold Prop. 22.”

What’s next?

California’s attorney-general or Protect App-Based Drivers and Services can file an appeal to overturn Justice Roesch’s decision. Even an expedited appeal could take several months.

For now, gig economy companies might be required to begin paying into workers’ compensation funds – but the companies argue that nothing will change until the appeal is resolved. They also said they had no immediate plans to change how drivers were classified. All of the provisions of Proposition 22 will stay in place until the appeals process is completed, Mr. Vetter said.

Stacey Leyton, the lawyer for the drivers, disagreed. “The Superior Court declared Prop. 22 invalid,” and drivers ought to be considered employees immediately, she said.

The California fight is starting to be repeated in other states. In August, the companies filed for a similar ballot push in Massachusetts, where gig worker treatment is already facing close scrutiny.

The SEIU and other labour activists vowed to keep up their fight and plan to help drivers’ organizing and activist efforts.

“We’ll continue to support their actions for their demand for basic rights that are afforded to them under current law, reaffirmed to them on Friday,” said Alma Hernandez, the executive director for SEIU California.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Report an error

Tickers mentioned in this story