California high court rules gig workers can be treated as independent contractors

The California Supreme Court ruled gig workers can continue to be treated as independent contractors, not employees, dealing a blow to the state legislature’s labor regulations.

The ruling upheld the constitutionality of Proposition 22, a 2020 ballot initiative that classified gig workers for companies such as Uber and Postmates as independent workers. A key issue was whether or not ballot initiatives could be used to enact laws that are in contradiction to or modify laws passed by the state legislature, such as AB 5. AB 5, passed by the state legislature in 2019, spurred the passage of Prop. 22 and codified an “ABC” test for determining if a worker is an employee or independent contractor.

The ABC test — outlined in an earlier California Supreme Court ruling — held that only workers who are free from control and direction by the hiring entity, performing work outside the usual scope of the hiring entity’s business, and are independently engaged in the work they are hired by the hiring entity for are actually independent contractors. The ruling and legislation were squarely aimed at so-called “gig” employers such as Uber and Postmates to require them to give their workers minimum wage protections, unemployment insurance, sick days, and other benefits guaranteed to California employees but not independent contractors.

The new ruling found that voters could use ballot initiatives such as Prop. 22, which was funded by companies including Uber and Postmates and excluded app-based drivers from AB 5, to amend California laws passed by the legislature.

“The power of initiative includes ‘the power to abrogate existing [laws].’ Accordingly, the people may alter existing workers’ compensation policy without running afoul of article XIV, section 4,” the court ruled.

Under AB 5, gig workers would have received standard employee protections; Prop 22. enacted less stringent protections but included wage guarantees at 120% of minimum wage, and a 35 cents-per mile reimbursement (as part of, and not in addition to the wage guarantee), a healthcare subsidy, and accident insurance.

The 2.3 million-member California Labor Federation, which sponsored AB 5 and opposed Prop. 22, painted the ruling as a blow against workers’ rights.

“We are deeply disappointed that the state Supreme Court has allowed tech corporations to buy their way out of basic labor laws despite Proposition 22’s inconsistencies with our state constitution,” said CLF president Lorena Gonzalez. “These companies have upended our social contract, forcing workers and the public to take on the inherent risk created by this work, while they profit.”

The California Chamber of Progress, a center-left tech industry policy coalition that supported Prop. 22, noted this ruling is one of many that affirms the right of workers to choose to be independent contractors, not employees.

“Rideshare drivers want to be their own boss and set their own schedule. That’s a top benefit of the job and this decision protects that independence,” said Chamber of Progress CEO Adam Kovacevich. “With New York, Massachusetts, Washington, and California all now agreeing on independent work for drivers, this really settles the question of gig worker classification.”

The Chamber of Progress also warned that AB 5 protections at a national level could result in "lost work opportunities for 3.4 million American workers," implicitly attacking new labor classifications put in place by the Biden administration.

Acting United States Labor Secretary Julie Su, who previously implemented AB 5 as Secretary of the California Labor and Workforce Development Agency, adopted a test similar to the ABC test nationally as a federal regulation earlier this year. With the United States Supreme Court ruling overturning Chevron deference, which had previously required courts to defer to agency interpretations of statutes, Su’s new rule could be overturned by one of the many cases challenging it.