Fight Over Employment Status of Uber and Lyft Drivers Moves Through State Courts

UPDATE: In July, the California Supreme Court unanimously held that the portion of the initiative that classified app-based ridehail and delivery drivers as independent contractors does not conflict with the state constitutional clause that gives the legislature power to create “a complete system of workers’ compensation.

Dan Ocampo is a Staff Attorney with the National Employment Law Project, which filed amicus curiae briefs in support of the plaintiffs in Castellanos v. State of California and El Koussa v. Campbell.

The California Supreme Court hears oral arguments Tuesday in a case about the constitutionality of a 2020 ballot initiative, Prop. 22, that classified app-based ridehail and delivery drivers as independent contractors.

It is just the latest salvo in a long-running fight over the status of app-based workers in California: are they employees entitled to minimum wage, overtime, workers’ compensation, unemployment insurance, and other workplace protections; or independent contractors with minimal rights under state law?

The fight began when the state’s highest court adopted the worker-friendly “ABC test” in determining worker classification for the purposes of state wage and hour law, a decision then codified by the state legislature with the passage of Assembly Bill 5. Applying the ABC test, app-based drivers would likely be employees, unless the companies could show that their drivers are engaged in work outside the usual course of the company’s business — like a plumber called in to fix a pipe leak at a restaurant.

In 2019, the state sued Uber and Lyft under the revised law and won an injunction requiring the companies to properly classify their drivers. But instead of changing their business model to comply with state employment law, the companies sought an industry-specific exemption from state law, spending an estimated $230 million to pass Prop. 22.

Now the issue is back in the courts, this time in Castellanos v. State of California. The central question in the case is whether Prop. 22 abrogated the legislature’s constitutionally granted power to create and enforce a complete system of workers’ compensation. The plaintiffs, a group of affected drivers, take aim at a clause in the initiative that prohibits any future amendment of its provisions except by vote of a seven-eighths majority of the legislature. They argue the clause violates the California Constitution’s separation of powers, and that the initiative unlawfully deprives the legislature of its authority to establish a “complete system” of workers’ compensation. A lower court judge agreed with the drivers, finding Prop. 22 invalid in its entirety, but a divided panel on appeal largely reversed the decision and upheld the initiative.

A similar story is playing out in Massachusetts, where trial began last week in Healey v. Uber & Lyft. In that case, the Massachusetts attorney general is going after Uber and Lyft for misclassifying its drivers as independent contractors and for systematically violating the state’s wage and hour laws, which use the same ABC test. If the state wins, the companies could owe drivers hundreds of millions of dollars in unpaid wages.

Partially in response to the state’s enforcement case, ridehail companies are trying to pass a replica of Prop. 22 in Massachusetts that would strip drivers of their employment rights. This is the second time the companies have attempted to use a referendum to avoid liability for wage theft under Massachusetts’s robust Independent Contractor Law. A similar ballot initiative proposed in 2022 was thrown out after the state’s highest court found the initiative violated a state constitutional provision barring ballot measures that contain multiple unrelated policy choices.

This year, the companies have proposed, and the state has certified, five different versions of the initiative. Workers have again challenged the newer initiatives as violating the constitution’s relatedness provision. They argue that the initiatives require voters to make multiple distinct policy judgements as to whether ridehail drivers should be covered by various state employment laws, and also whether employers including Uber and Lyft should be required to contribute to the some of the state’s social insurance systems. The Massachusetts high court heard arguments in the case, El Koussa v. Campbell, earlier this month.

And there’s one final twist in the Massachusetts saga this year: the industry-backed proposal isn’t the only initiative on the state ballot this fall. An initiative backed by some unions in the state would create a new system of sectoral bargaining for ridehail drivers. The proposal is complicated, in part because it attempts to thread the needle between its objective of winning collective bargaining rights for ridehail drivers, on the one hand, and federal preemption and antitrust law, on the other hand.

Most private sector labor law at the state level is preempted by the National Labor Relations Act. But to the extent ridehail drivers are excluded from the protections of the act as independent contractors — a legal question which has not yet been addressed by the federal agency that enforces that statute, the National Labor Relations Board — then any state law affording them the right to collectively bargain is likely not preempted. With that in mind, the proposed initiative grants workers a qualified right to organize and collectively bargain under state law, as long as they are considered independent contractors under the act.

But federal antitrust law poses an additional barrier to the proposed initiative, since an attempt by a group of independent contractors to negotiate over wages would constitute attempted price-fixing, a per se violation of section 1 of the Sherman Act. To avoid that prohibition, the proposed initiative takes advantage of the state action immunity doctrine, which immunizes potentially illegal coordination when it is authorized by state action, by using the umbrella of state authority to enact the bargained-for agreements into law.

The state’s highest court is also hearing a challenge to the legality of this ballot initiative, in Craney v. Commonwealth — not on preemption or antitrust grounds but on the grounds that it too violates the relatedness requirement by combining multiple distinct policy issues and putting them to a straight up-or-down vote.

Whatever happens in the litigation, app-based workers organizing around the country are beginning to win major legislative victories at the state and local level. But for workers in California and Massachusetts, the issue is for the moment in the hands of the courts — and, possibly, the voters.

Suggested Citation: Dan Ocampo, Fight Over Employment Status of Uber and Lyft Drivers Moves Through State Courts, Sᴛᴀᴛᴇ Cᴏᴜʀᴛ Rᴇᴘᴏʀᴛ (May 20, 2024), https://statecourtreport.org/our-work/analysis-opinion/fight-over-employment-status-uber-and-lyft-drivers-moves-through-state.