California's 'Landmark' Labor Law Is Still Wreaking Economic Havoc

It's the sign of particularly bad legislation when lawmakers must create dozens of carve-outs and workarounds so that the supposed beneficiaries are exempted from its provisions.

Just for old time's sake and because my cellphone battery was about to die, I hailed an airport taxicab during a business trip last week to the East Coast rather than my usual practice of calling for a ride using Uber or Lyft. It was a reminder of how far those gig-based transportation-network services have taken us in just a few years.

I needn't remind you of the general unpleasantness of taxicabs, with their grimy vehicles and old-fashioned credit-card readers—or how much nicer it is to have a friendly driver pick you up in a late-model car, with the ride billed automatically via an app. It's nice, also, that ridesharing reportedly has reduced the incidence of drunken driving.

Yet in California, the same officials who extol the virtues of our tech-based economy like to stamp out any innovation that threatens the established order, including the one that revolutionized urban travel.  They've recently gotten assistance from the courts, after an Alameda County Superior Court judge last month gave new life to a "landmark" labor law that its authors designed to boost drivers' pay.

The well-known legislation, Assembly Bill 5, codified the state Supreme Court's 2018 Dynamex decision, which concocted an "ABC Test" to determine when companies could use independent contractors rather than permanent employees. Essentially, the high court determined that they could only use such workers in some narrowly tailored circumstances.

The decision and follow-up legislation threatened hundreds of thousands of jobs held not only by app-based drivers—but by workers in all types of old-line industries including reporters, barbers, insurance agents, sign-language interpreters, and musicians. Well, the democratic sausage-making process played itself out, however slowly and imperfectly.

The law should have been repealed. Feeling pressure from influential lobbies and then from out-of-work freelancers, the Legislature instead exempted 100 industries from its job-destroying provisions. Its author, Assemblymember Lorena Gonzalez (D–San Diego), sometimes savaged critics on Twitter, but also offered another workaround—e.g., exempting freelancers under a business-to-business exemption.

It's the sign of particularly bad legislation when lawmakers must create dozens of carve-outs and workarounds so that the supposed beneficiaries are exempted from its provisions.  Despite the post-AB 5 blowback, California's Democratic-controlled Legislature wouldn't entirely relent. Voters helped them out by passing Proposition 22 in November, thus adding ride-share drivers to the list of exempted workers.

Unfortunately, the measure's union opponents found a friendly court to challenge the measure and filed a case in one of the state's most left-leaning areas, Alameda County. It's not hard to guess the results. In August, Judge Frank Roesch overturned Prop. 22, even though it passed by an overwhelming 59 percent to 41 percent margin. So much for the People's power when the People don't do the "right" thing.

The union lawsuit challenged some narrow aspects of the initiative, and the judge agreed that the initiative is "unconstitutional because it limits the power of a future legislature to define app-based drivers as workers subject to workers' compensation law." That's a far-reaching conclusion, but one that has union activists and progressives crowing.

The initiative "deprived the workers of benefits such as overtime pay, unemployment and workers' compensation coverage, and the right to unionize. The companies, in other words, used their wealth to reshape labor law in their sole interest," opined The Los Angeles Times' Michael Hiltzik. Actually, the initiative allowed workers and companies to come to their own arrangements. Go figure that lefties don't complain when unions use their wealth to reshape state laws.

The judge found that the initiative improperly restricts the Legislature, which is odd given that the entire initiative process was designed specifically to rein lawmakers' power.  Roesch seemed to ignore decades of case law that give voters the power to make law in this state. If the decision stands, it will not only overturn Proposition 22—but could significantly constrict our direct democracy.

The judge also found that Proposition 22 violated the state's single-subject rule—the requirement that all initiatives deal only with one issue and not include a grab bag of different matters. In Roesch's view, the measure "obliquely and indirectly" limits workers' ability to join a union, which makes it a separate issue from the contractor exemption.

Had the initiative's authors dealt with the secondary subject of collective bargaining, the judge presumably wouldn't have to have searched for any oblique references. In reality, the only aspects of the initiative that deal with collective bargaining do so in the context of driver compensation and working conditions, which happens to be the core subject of the initiative.

No matter. Unions achieved their desired result, whatever the long-term consequences. The initiative's sponsors will appeal the decision. It's the status quo in the meantime, but if the state's Supreme Court justices ultimately agree with the unions, their hubris will do more than destroy these flexible ride-sharing jobs. It could force the rest of us to relearn the art of flagging a taxi in the rain.

This column was first published in The Orange County Register.