California: Court Strikes Down Ballot Measure Addressing Classification of Gig Workers

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Detailed California Development

On Election Day 2020, California voters approved a ballot measure (Proposition 22) providing that under California law certain app-based drivers would not be treated as employees, but rather as independent contractors. The treatment of the app-based drivers as independent contractors has tax implications, but also precludes those individuals from being able to participate in worker’s compensation systems. Recently, certain organizations and four app-based drivers challenged Proposition 22 in a California superior court on the basis that it violated various provisions of the California Constitution and was therefore unenforceable.  

In California, the Legislature has the authority, “unlimited by any provision of the Constitution,” to establish and enforce a system of worker’s compensation. The Constitution also prohibits the Legislature from acting to amend or repeal an initiative statute without a subsequent vote of the people. These two provisions, the judge determined, conflicted. If the Legislature’s authority can be limited by an initiative statute, it is not plenary or “unlimited by any provision of the Constitution.” The judge concluded that the more general plenary and unlimited clause governed and because Proposition 22 limited the power of a future legislature to define app-based drivers’ as being subject to worker’s compensation provisions, it was unconstitutional.  Importantly, the section of the proposition that removed app-based drivers from the protections of workers compensation laws was not severable, meaning the entirety of Proposition 22 was struck down.  The judge also found that another section of Proposition 22 was lacking because it attempted to prohibit the Legislature from making future amendments to Proposition 22 that exceeded its “theme, purpose, or subject.”   The superior court decision in Castellanos v. California will likely be appealed. Please stay tuned to TWIST for future updates on the litigation. 

This Week's Developments

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Sarah McGahan

Sarah McGahan

Managing Director, State & Local Tax, KPMG US