California Judge Injects Uncertainty into Gig Economy with Court Ruling

California voters thought they had settled a fierce debate raging within the trillion-dollar gig economy last November. Namely, should gig workers, like Uber and Lyft drivers, continue to be independent contractors as they have always been, or reclassified as employees and therefore entitled to all the benefits and restrictions of employment?

On one side of this debate is the California State Assembly, which passed a law (AB5) forcing gig companies to shift the classification of workers from independent contractor to employee (with some exceptions). 

On the other side are gig companies, whose representatives argued that workers do not meet the definition of “employees,” owing to their flexible, self-directed work schedules and tendency to work less than 40 hours per week. They also pointed out that abiding by this new law would lead to massive price hikes and layoffs.

Instead, gig companies proposed it would be better to create a new classification of worker, one that allows for both flexibility and some basic benefits and protections – a so-called “third way” of working. In November 2020, they took this proposal to the voters of California and won handily, earning 59% approval for their Proposition 22.

Following its passage, a coalition of “ride-hail” drivers and labor unions legally challenged the proposition, but the California Supreme Court refused to even hear the case, and this seemed to be the final word on the matter. 

Not so fast.

Undeterred by the California High Court ruling, the coalition filed an appeal with a lower court, and found a sympathetic ear in California Superior Court Judge Frank Roesch, who ruled last month that Proposition 22 violates the state constitution.

Per The New York Times, here were the three main arguments the judge relied upon in issuing his ruling:

  • 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.” In so doing, the judge ruled, Prop 22 interferes with the California Legislature’s sole constitutional right to set and control workers comp.
  • The judge objected to barriers embedded in the proposition which would make it difficult for legislators to change the law, which requires a seven-eighths majority. He also criticized a provision of Prop 22 that requires all future changes be consistent with the proposition, which, the judge argued, would prevent any major alterations.  
  • The judge took issue with a provision that made it more difficult for gig workers to unionize. According to the proposition, such a change would be considered an amendment and thus require a seven-eighths majority. However, the judge ruled legislation related to collective bargaining should be considered “unrelated legislation.”

A coalition representing gig companies is currently planning an appeal of the decision.

“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.”

The gig economy has been a tremendous free market success story with some 57 million freelancers (around 36% of the workforce) contributing over $1 trillion to the economy. 

Workers like the arrangement because it affords them flexibility and control. In fact, according to a recent MetLife research report, 85% of gig workers plan to stay in the economy, while 67% of full-time employees would like to join it. The most oft cited reasons for the gig economy appeal are flexibility and work-life balance. Gig companies, meanwhile, like the arrangement because it reduces overhead and enables their businesses to grow more quickly.

If Proposition 22 is judged to be invalid, one of two things will disappear immediately for gig workers, either job flexibility or the job itself as gig companies adjust to the higher costs of doing business. If Proposition 22 holds, the future for the gig economy seems clear in California and elsewhere: massive growth, expansion and innovation in this new economy.

For now, the gig economy sits in limbo, with Proposition 22 mired in a lawsuit and AB5 allegedly in force but widely ignored by gig companies who say nothing will change until the appeal is settled. This is all thanks to California legislators who just couldn’t leave well enough alone. 

Additional resources:

Ask the Experts: Making a Living the Gig Economy Way (blog)

A Big Labor Plan to Undermine the Gig Economy (blog)

Earning a Living the Gig Economy  Way (webinar)

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