California Supreme Court to hear arguments on Uber, Lyft-backed Prop. 22

California’s Supreme Court will hear arguments Tuesday on the constitutionality of Proposition 22, the voter-approved law that classified drivers working in the gig economy as independent contractors rather than full-fledged employees.

The court must decide whether the law, which Uber, Lyft, Doordash and other app-based delivery companies pushed with a $200-million campaign in 2020, unlawfully interferes with the state Legislature’s authority to provide workers’ compensation protections to those who are injured on the job.

How the justices ultimately rule will have enormous implications for the delivery and ride-hail companies that have argued their ability to operate in California depends on the law’s survival, as well as the million-plus people in in the state who drive for them.

A victory for the group of drivers and unions that brought the lawsuit challenging Proposition 22 would leave Uber, Lyft and companies like them to decide whether to continue operating in California, one of their largest markets.

Under the law, drivers are considered to be their own employers, a designation that frees the companies they drive for from having to provide benefits traditional employees in the state are entitled to, such as overtime, sick leave and a minimum wage.

Proponents of the law argue it gives workers flexibility to set their own work schedules, while also providing some benefits not typically afforded to independent contractors, such as access to private insurance to cover on-the-job injuries and an earnings guarantee of 120% of the local minimum wage.

The Service Employees International Union and a group of drivers first brought the lawsuit challenging Proposition 22 in January 2021, just after the law went into effect. They unsuccessfully sought to take the case directly to the California Supreme Court and were left to pursue the case in a lower court.

In a sweeping decision, Alameda County Superior Court Judge Frank Roesch ruled in August 2021 that Proposition 22 was unconstitutional and unenforceable.

The law failed to pass constitutional muster, Roesch wrote, because it infringed on the power of the Legislature explicitly granted by the state Constitution to regulate compensation for workers’ injuries.

“If the people wish to use their initiative power to restrict or qualify a ‘plenary’ and ‘unlimited’ power granted to the Legislature, they must first do so by initiative constitutional amendment, not by initiative statute,” the judge wrote.

In March 2023, a split three-judge panel from a state appeals court largely reversed that ruling, finding the law did not impede the Legislature’s authority and upholding the legality of the law’s provision classifying drivers as contractors.

Supporters of the law celebrated the ruling as a “historic victory for the nearly 1.4 million drivers who rely on the independence and flexibility of app-based work to earn income, and for the integrity of California’s initiative system.”

Proposition 22 has remained in effect throughout the appeals process.

When they make their case Tuesday, attorneys for the drivers and the union are expected to press ahead with their assertion that the law improperly leaves gig economy drivers who suffer injuries while working without access to compensation enjoyed by traditional employees in the state.

The state Constitution “grants the Legislature unlimited power to protect workers with a complete workers’ compensation system,” said Scott A. Kronland, an attorney representing SEIU and the drivers.

A group backed by Uber, Lyft and DoorDash, called the Protect App-Based Drivers & Services coalition, meanwhile counters that courts should respect the will of voters, who voted by a 58% margin to approve the law.

In a statement Tuesday, Lyft spokesperson Shadawn Reddick-Smith said: “The Court of Appeal’s decision to uphold Prop. 22 was the right one, and consistent with long-standing legal precedent upholding the voters’ initiative power. If Prop. 22 is struck down, drivers could lose access to flexible earning opportunities and millions of Californians could face difficulties finding affordable transportation.”

The California Supreme Court will be required to issue its ruling within 90 days of Tuesday’s hearing.

Little would change if the court upholds Proposition 22, although a part of Roesch’s ruling that the Supreme Court is not considering left open the possibility of drivers collectively bargaining over pay, benefits and working conditions — though their right to do so would need to be decided by the courts.

A victory for the drivers, however, could require Uber and the other ride-hailing and delivery companies to treat their drivers as employees, a sea change that would upend the companies’ financial structures and raise the prospect of companies pulling out of California.

Both Uber and Lyft threatened to leave Minnesota after the state announced a statewide minimum wage for drivers, although they retracted that threat after reaching a compromise with the state officials.

Nicole Moore, president of Los Angeles-based driver group Rideshare Drivers United, said if Proposition 22 is upheld, “it will be crushing.”

Provisions of the law make it extremely difficult if not impossible to advance policies that could help drivers, Moore said.

“We have literally been handcuffed by Prop. 22,” Moore said. “Drivers are driving more than they’ve ever driven before to make the same or less money than they did a couple years ago.”

On Monday around 9 a.m., scores of drivers gathered outside the office of SEIU Local 721 in Westlake, preparing to travel as a car caravan up to San Francisco to rally outside the courthouse during oral arguments. They loaded into dozens of honking cars lined up along a nearby intersection, plastered with signs denouncing Proposition 22 as “bad for workers, bad for the economy, bad for California.”

Jorge Vargas, 53, among drivers who joined the rally, said benefits drivers receive under Proposition 22 were close to useless.

“It’s really not worth it. You’re stuck in the street with that kind of pay,” he said. “We hope judges will do the right thing and strike it down.”

A report released on Monday by researchers with the UC Berkeley Labor Center that analyzed data on driver earnings in January 2022 in major metro areas, including Boston, Chicago, Los Angeles, San Francisco and Seattle, found drivers earned less than the local minimum wage.

After expenses and excluding tips, drivers’ median net hourly earnings were found to be $7.12 in California and $10.64 in the other metro areas, the report found.

The coalition backing Proposition 22 has commissioned several reports on driver earnings that conflict with such findings. Molly Weedn, a spokesperson for the coalition, pointed to a 2022 study commissioned by the coalition that found app-based drivers earn $34 an hour on average.

Michael Reich, a co-author of the UC Berkeley Labor Center report, contends that drivers earn far less than what companies claim, particularly when factoring in gas and maintenance costs.

Reich said that while the courts may choose to narrowly focus on technical legal arguments, the ruling could have a ripple effect for drivers and labor policies across the country.

A decision to uphold Proposition 22 by the state court “would be a shot in the arm for Uber and Lyft” to redouble efforts in other states where they are pushing similar measures, such as Massachusetts, Reich said.

Earlier this month, Massachusetts’ highest court heard arguments over whether to allow a similar industry-backed ballot measure to go before voters in November.

“Their decision is very consequential for drivers and the companies,” Reich said. “Public policy issues are paramount.”