The Saga of the Gig Worker is Over, Now the Future Begins

By Randy Pollak, Esq.

On July 25, 2024, the California Supreme Court issued its decision in Castellanos v. State of California, which upheld the constitutionality of Proposition 22.  The reader may recall, perhaps from the massive advertising campaign in 2020, that Proposition 22 was designed to remove “gig” workers from the workers’ compensation system and declare them independent contractors.  The practical result of the Castellanos decision, in short, is that the gig workers are not employees subject to the workers’ compensation system.  This result was the culmination of years of extensive regulatory, legislative, and legal battles.  While this decision is the end of that war, it is also the beginning of a brave new future for workers’ compensation in California.  Aside from the likely consequence of more and more fields converting to app-based arrangements to take advantage of this new paradigm, the real impact may be much more fundamental. Taking cues from the example of Proposition 22, and the Castellanos result, the history and tradition of the “grand bargain” of legislating workers’ compensation reform may look very different going forward, since stakeholders can now go directly to the voters through the initiative process, to get what they want.

Background: How did we get here?

Statutorily, the Labor Code provides some simple definitions, regarding who is an employee, and who is an independent contractor.  Per Labor Code section 3351, “’[e]mployee’ means every person in the service of an employer under any appointment or contract of hire…” 

There is also a simple definition of someone that is not to be defined as an “employee,” but rather as an “independent contractor.”  Per Labor Code section 3353, that is “any person who renders service for a specified recompense for a specified result, under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished.”

But these simple definitions wash over a complex history which contributes to a fuller understanding of the gravity of the Castellanos decision.  Even before the gig worker debate with app-based drivers, such as Uber and Lyft, the policy objectives influencing the analysis of who, and why, someone was an employee vs. independent contractor, was contentious, and evolving.  

This friction goes back centuries, all the way to the common law “control of details” test, to protect employers from vicarious liability.  Moving into the 20th century, the focus shifted to social welfare legislation and their statutory purpose, with the Borello factors test.  After a 30-year Borello regime, the Supreme Court of California initiated a revolution in Dynamex, which spurred the California legislature to pass AB5 and implantation of the ABC test across the board for all systems where the definition of who is an employee is relevant.  Many industries were able to negotiate exemptions from this new regime, but, the gig worker app-based giants, were not.  That was likely because they were the focus of the legislation itself.

That dispute boiled over with a gigantic, and successful, campaign to exempt the classification of workers in a single industry, the “gig” workers for app-based companies.  That was Proposition 22, with implementation of Bus. & Prof. Code section 7451.  The campaign for passage spent over $205 million and achieved passage with 58.63% of the vote.

But then things got complicated with Castellanos v. State of California in early 2021, with the trial court finding Proposition 22 unconstitutional on multiple grounds.  Then, in a near 180 degrees turn, the 1st Appellate District partially reversed that decision in a 132-page opinion in Castellanos v. State of California, 2023 Cal. App. LEXIS 183.  In short, the most important holding being that Proposition 22 does not violate the legislature’s plenary power over workers’ compensation matters as found in article XIV, section 4 of the California Constitution. 

Then the appeal was made to the California Supreme Court, along with over two dozen amicus filings.

California Supreme Court decision

The legal context before the Court was succinctly summarized as follows:

This case concerns Business and Professions Code section 7451, which was enacted by the voters through Proposition 22…Under section 7451, a driver for an app-based transportation or delivery company, such as Uber Technologies, Inc. (Uber), Lyft Inc. (Lyft), or DoorDash, Inc., is an independent contractor and not an employee of the company as long as several conditions are met. As a result of section 7451, app-based drivers are not covered by California workers’ compensation laws, which generally apply to employees and not to independent contractors.

The issue before the Court was summarized as follows:

Does Business and Professions Code section 7451…conflict with article XIV, section 4 of the California Constitution and therefore require that Proposition 22, by its own terms, be deemed invalid in its entirety?

The Court holds, in a relatively straightforward decision (25 pages, not including the amicus service list vs. 132 pages for the appellate decision), that “section 7451 does not conflict with article XIV, section 4 because the latter does not preclude the electorate from exercising its initiative power to legislate on matters affecting workers’ compensation.”  

This article does not revisit the legal analysis that got to that holding, specifically the discussion of the McPherson case.  Rather, for our purposes, the salient legal guidance is as follows:

But in light of our conclusion that the article XIV, section 4 power is not exclusive, it would unduly restrict the initiative power to give the Legislature what would essentially be a first-mover advantage, precluding the electorate from undoing any action the Legislature takes pursuant to article XIV, section 4. The power of initiative includes “the power to abrogate existing [laws].” (California Redevelopment Assn. v. Matosantos (2011) 53 Cal.4th 231, 255.) Accordingly, the people may alter existing workers’ compensation policy without running afoul of article XIV, section 4. We express no view on the outer bounds of that authority or whether article XIV, section 4 might place limits on it.

What does this mean for a workers’ compensation case?

While the status of the “gig” worker was winding itself through various layers of appeals, the WCAB had allowed cases with gig workers to proceed with basic discovery.  For example, the WCAB dipped its toe in the water on this in Murguia v. Lyft, 2022 Cal. Wrk. Comp. P.D. LEXIS 288, allowing some level of discovery.  There, the applicant’s attorney had issued a subpoena for Lyft’s personnel file.  Lyft objected, and argued there was no WCAB personal or subject matter jurisdiction because the worker was an independent contractor, and there was no right to any discovery.  The Judge held that there was jurisdiction to determine the issue of employment and ordered the parties to meet and confer regarding the subpoena.  Lyft filed a petition for removal. The WCAB then denied removal.

What, if any, proceedings now could take place at the WCAB, given the Castellanos decision?  The answer to this question is mostly academic, and likely a “dead end,” but, as the Court in Castellanos stated, “as long as several conditions are met…” they are independent contractors.

As noted in Murguia, the WCAB still has jurisdiction to determine employment status.  So, the WCAB could take jurisdiction over a case, and do a trial over employment.  However, assuming the basic “conditions” are met in the evidentiary record, the finding would be no employment.  And what are those conditions?  They are outlined in Bus. & Prof. Code sect. 7451 (a) through (d) as follows:

1. The network company does not unilaterally prescribe specific dates, times of day, or a minimum number of hours during which the app-based driver must be logged into the network company’s online-enabled application or platform.
2. The network company does not require the app-based driver to accept any specific rideshare service or delivery service request as a condition of maintaining access to the network company’s online-enabled application or platform.
3. The network company does not restrict the app-based driver from performing rideshare services or delivery services through other network companies except during engaged time.
4. The network company does not restrict the app-based driver from working in any other lawful occupation or business.

Castellanos Impact on Future Reforms 

The grand bargain of workers’ compensation in California, for better or worse, has been relatively stable.  However, after Castellanos, the question now is, if a stakeholder is not satisfied with their options through the normal legislative process, can they go straight to the voters and get what they want?  According to the holding in Castellanos, this is entirely foreseeable.  After all, the result in Castellanos was an entire industry being exempted out of the workers’ compensation system because there is nothing “precluding the electorate from undoing any action the Legislature takes pursuant to article XIV, section 4.” 

How difficult is it to imagine an employer or carrier group, finally fed up with cumulative trauma claims, going directly to the voters and seeking revision of the “contributing cause” standard (i.e., 1%).  After all, psychological claims are already subject to a heightened causation standard of more than 50%, per Labor Code section 3208.3.  But, what’s “good for the goose is good for the gander.” For example, could an equally frustrated labor group push forward an initiative to revise MPNs or UR?

Conclusion

The saga of the gig worker is now fundamentally over.  They are exempt from the workers’ compensation system. The WCAB likely has jurisdiction to address whether a purported gig worker is an employer or independent contractor, assuming the “several conditions” of Bus. & Prof. Code section 7451(a) to (d) are met.  But, considering the end result of that analysis, it is difficult to foresee much academically oriented litigation taking place.  Now, the question for all of us becomes, what does this mean for the future of workers’ compensation in California?  Aside from more industries shifting to an app-based platform to avoid the workers’ compensation system, what the Castellanos decision makes clear is, the voters can pass workers’ compensation reform. Now let the games begin.