Uncertainty after Prop 22 Court Ruling Could Lead to Comp System Changes for Gig Workers

William Rabb

Sacramento, CA (WorkersCompensation.com) — The move toward a freewheeling gig economy, where fewer workers are covered by compensation insurance, has hit a roadblock, thanks to a recent California court ruling l that struck down a voter-approved measure.

The legal fight is far from over, though, and industry experts say the continued uncertainty could give new impetus to covering drivers and other independent contractors with a different type of comp solution.

“I can see more states doing something like New York does with the Black Car Fund,” said Brian Allen, vice president of government affairs for Mitchell, the claims management and technology company.

Under the Black Car Fund program, limousine riders pay a small fee, so that drivers’ medical treatment and wages are at least partially covered in case of an accident.

“States have an interest to protect workers, so that they don’t end up covered by a taxpayer-funded program,” Allen said.

The Alameda County, California, court ruling, posted Friday, Aug. 20, has thrown into sharp relief the issue of who should be considered independent contractors. Even some plaintiffs’ attorneys, often found on the side of organized labor and workers, agree that the modern working world does not always lend itself to the post-World War II model of employer-based benefits.

“It’s like trying to fit an oval peg in a round hole,” said Alan Pierce, a claimants’ lawyer and podcaster based in Boston. “I can see that it can become problematic to decide if a driver is an employee or an independent contractor. It’s almost a gray area now.”

California is the biggest state in which the gig economy battles have been fought, but other states may soon see initiatives on the ballot. Uber, Lyft, Instacart and DoorDash this month filed a ballot proposal in Massachusetts. Voters in that state could decide as early as next year if drivers and other giggers should be classed as independent contractors – but eligible for limited benefits and a minimum wage of $18 an hour, according to news reports.

The Massachusetts proposal appears to be very similar to California’s Proposition 22, which Golden State voters approved by a wide margin last November after an expensive campaign waged by the ride-hailing firms. After some drivers and a service workers union filed challenges to the proposition, California Superior Court Judge Frank Roesch held that the measure violated the state constitution because it potentially deprived drivers of workers’ compensation benefits.

The California voter initiative went further than simply classing drivers as independent. It also required a seven-eighths majority of the Legislature to amend the measure. That restricted lawmakers from making gig workers eligible for comp insurance, violating the language of the state constitution, the judge wrote.

“The California Constitution vests in the Legislature the ‘plenary power, unlimited by any provision of this Constitution, to create, and enforce a complete system of workers’ compensation,’” Roesch noted. “The Court finds that Section 7431 (of Prop 22) is unconstitutional because it limits the power of a future legislature to define app-based drivers as workers subject to workers’ compensation law.”

The ride-hailing companies have vowed to appeal.

“We believe the judge made a serious error by ignoring a century’s worth of case law requiring the courts to guard the voters’ right of initiative,” said Geoff Vetter, a spokesman for PADS, the Protect App-Based Drivers & Services Coalition, which represents the gig companies. “This outrageous decision is an affront to the overwhelming majority of California voters who passed Prop 22.”

An appeal could take a year or longer. Meanwhile, it seems unclear whether the Superior Court ruling will have a binding impact on drivers while it’s on appeal. That uncertainty is like Kryptonite to insurers.

“From a carrier’s perspective, what we want is certainty in terms of knowing who is covered by our policies,” said Mark Walls, vice president of communications and strategic analysis at Safety National. “We cannot underwrite to unknown exposures, so this constant flux of classification of independent contractors is extremely difficult for all parties involved to work through.”

A victory for carriers would be a clear classification of which workers are employees and which are not, “and that the courts and legislatures stop constantly changing this,” Walls added.

Attorneys and other stakeholders around the country are equally unsure about the status of the California Proposition 22 law. Julius Young, an Oakland-based claimants’ lawyer and frequent blogger, noted that while the ride-hailing firms may argue that Prop 22 still stands while on appeal, it will probably require test cases filed with the California Workers’ Compensation Appeals Board to shine a light.

“With the the passage of Prop 22, it appeared that these issues of ride-share employment status would not be heading to the California workers’ comp system. Now that is a big question mark going forward,” Young said.

If an appeals court and the state Supreme Court uphold the decision, perhaps sometime late next year, that doesn’t mean the end of the matter. The ride-hailing companies will probably try again with a ballot initiative in California or a constitutional amendment, according to Mitchell’s Allen and Joe Paduda, a consultant and workers’ comp strategist with Health Strategy Associates.

Paduda said all of that amounts to a “pretty steep hill to climb,” which suggests that the move to a broader freelance economy may not be coming as quickly as some employers had hoped.

“I think it’s inevitable now that these types of workers will be classed as employees in a lot of states,” Allen said. “This is a blow to the ride-sharing industry.”

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