California's Supreme Court: Uber chauffeurs remain self-employed

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Uber, Lyft and Doordash can breathe a sigh of relief: they can continue to treat their Californian chauffeurs as self-employed. This is the result of a unanimous ruling by the Supreme Court of California. It confirms that the core of a referendum won by Uber and Lyft in 2020 is constitutional. A trade union contested this, ultimately unsuccessfully.

However, the Supreme Court expressly leaves one point open: Would the legislator be allowed to change the legal text introduced by the referendum again, and if so, to what extent?

How the decision came about

The referendum known as Proposition 22 saved the business model of Uber, Lyft, Doordash and other food delivery companies. The starting point was a decision by the Californian Supreme Court. In 2018, it derived criteria for the distinction between self-employed and non-self-employed workers from the law in force at the time. Accordingly, self-employed individuals are those who work under the control of their employer and do not otherwise operate an independent business of the same kind. In addition, the service provided must be part of the employer's normal business. This went too far for legislators; in 2020, a law (known as AB 5) came into force that provides for exemptions for various occupational groups, but not for drivers of ride-hailing companies such as Uber and Lyft. The state sued these companies for granting workers' rights. In fact, four-fifths of drivers do not want to be treated as employees, but want to remain self-employed.

Proposition 22 followed to make it legally clear that the drivers should be classified as self-employed. The advertising campaign for and against Proposition 22 was the most expensive campaign for a referendum in a US state to date by far. Over 216 million US dollars were spent, with supporters raising around seventeen times as much money as opponents. The main donors were, unsurprisingly, the companies Uber, Lyft, Doordash, Instacar and Postmates. The No campaign was mainly financed by trade unions. A clear majority of voters voted in favor of Proposition 22, which became law.

One union did not accept this and filed a lawsuit against the Californian Uber referendum, arguing that it was unconstitutional because labor law is the exclusive responsibility of parliament. In addition, several issues were inadmissibly mixed up in one proposition. In fact, the court of first instance ruled in favor of the union (Alameda County Superior Court, case no. RG21088725), meaning that Uber and Lyft were just hours away from closing down in the most populous US state. In the end, however, the majority of the Court of Appeal ruled in favor of the referendum and thus the independence of the Uber chauffeurs (First Appellate District, Division Four, case no. A163655). Only two ancillary provisions, including an anti-union provision, which were intended to further restrict the legislator, were upheld by the Court of Appeal as invalid because they were unconstitutional.

Supreme Court rules for the people, but not against parliament

Regarding the core element that ensures the chauffeurs' independence, the employee representatives were still able to obtain a review by the Supreme Court of California, but suffered another defeat there. Firstly, the Supreme Court held that legislative initiatives by referendum are not a possibility of lawmaking granted to the people by the legislature, but a fundamental right reserved to the people as sovereign; accordingly, according to established case law, provisions on referendums are to be interpreted in favor of the people in the event of a dispute.

It is true that the text of the California Constitution stipulates that legislation on certain topics (including labor law) is the responsibility of Parliament, "unrestricted by any constitutional provisions". However, the Supreme Court then explains that the word "unrestricted" should not be taken literally, as this would lead to absurd results; such laws would then be outside any constitutional framework. This was already decided by the Supreme Court of California in another case in 1937 (McPherson v City of Los Angeles). The union's argument that the people should not be allowed to vote on labor law has therefore failed.

But what if Parliament now passes an amendment that counteracts the result of the referendum? Proposition 22 stipulates that this is only possible with a majority of seven-eighths of MPs in each of the two chambers; a referendum would then have to be held again. This is a common clause in Californian referendums. However, whether it applies to labor law referendums cannot be decided in the abstract, says the Supreme Court. A specific legislative resolution would have to be submitted to it. At least until then, chauffeurs working for companies such as Uber, Lyft and Doordash can continue to drive as self-employed drivers in California.

The new regulations

The law, which will remain in force after the vote is confirmed, will bring new minimum standards and rights for chauffeurs:

• Minimum pay for driving time that is at least 20 percent higher than the minimum wage that applies to employees at the point of departure
• Tips may not be deducted and may not be reduced by fees, for example for credit cards.
• Additional minimum payment of 30 cents per mile, indexed to inflation
• Chauffeurs may not be forced to accept orders or to be available at certain times or locations. They may also work for direct competitors or pursue any other legal occupation.
• (Potential) chauffeurs are protected by a ban on discrimination and have the right to appeal against disciplinary measures.
• Operators of the brokerage apps such as Uber and Lyft must provide liability, accident and disability insurance.
• They must also reimburse their drivers for the average health insurance costs for a Californian "bronze" policy if the driver is logged on for an average of at least 25 hours a week (half the health insurance costs for 15 to 25 hours).
• Operators must have an anti-sexual harassment policy with complaint procedures for both drivers and passengers.
• Operators must check all drivers for criminal convictions and report all payments to the tax authorities.
• There is zero tolerance for suspected drug and alcohol use.
• Drivers must observe minimum rest periods and undergo safety training.

The case before the Supreme Court of California was Hector Castelllanos et al v State of California et al (Case No. S279622).

• ​ Erkenntnis des Supreme Court of Kalifornia in Castellanos et al v California et al

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