Workers' Compensation

California Court of Appeal Upholds Prop 22; Should Other Industries Follow?

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By Gregory Grinberg, Managing Partner, Gale, Sutow & Associates, San Francisco Bay South Office

Dear readers!

In a published decision in the case of Castellanos v. State of California, the majority panel of the California Court of Appeal declined to strike down Proposition 22 as unconstitutional.  Remember Proposition 22?  It was the ballot initiative that effectively excluded various gig economy entities from the ravages of AB-5.  In short, it allowed for the preservation of the “independent contractor” relationship rather than the effective presumption of employment brought about by AB-5. 

With Prop 22 in effect, individuals who choose to use software provided by such companies to engage in gig work would not be entitled to status as “employees” and remain independent contractors. 

Well, several of these individuals unhappy with the option of simply not engaging in an agreement to such terms decided to sue, and a Superior Court ruled that Proposition 22 was unconstitutional.  That ruling was met with an appeal and now we see Prop 22 survives to fight another day.

Likely this will go to the California Supreme Court, but let’s toy with the idea for a second that the Supreme Court affirms and, by initiative, Californian’s can carve out exemptions to the heavy presumption of employment vs. independent contractor status.  Can the results be replicated in other areas of California’s industry?

For example, could a coalition form of various somewhat related industries to exempt their respective employees in the same way?  What if enough restaurant groups cobbled together a bill allowing workers to “opt out” of employment for some higher salary?  If a waiter is offered minimum wage plus tips as an employee or $5 per hour above minimum wage to “opt out” and buy his or her own insurance for health and disability, would any waiters take the deal?

Depending on the ultimate fate of Prop 22, perhaps this is a model for California’s long besieged employers to escape the invariably expensive and borderline punitive workers’ compensation system.

Now, you might be thinking “humble author, you handsome devil, are you talking yourself out of a job?”  Well, not necessarily.  Work will continue to get done.  Injuries will continue to happen.  Fraud will continue to abound.  If more industries took the Proposition 22 route, coverage for these injuries will continue, but the policy holders could very well become the independent contractors rather than the employers.  It’s a crazy new world your humble author is imagining, but not one entirely different than the one we know now. What do you think, dear readers?  Will more industries push through initiatives to carve out an escape from workers’ comp?  Or is this Prop 22 to be a stand-alone-Stan for the gig economy?

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