California's Unions Lost Their Long Battle Against Uber and Lyft

The state Supreme Court unanimously ruled that ridesharing drivers can be exempted from California's crackdown on independent contracting.

The California Supreme Court deserves two cheers for its unanimous decision last month upholding the constitutionality of Proposition 22—the 2020 ballot initiative that exempted ride-sharing and delivery drivers from the state's ban on independent contracting and provided drivers with a few benefits. The ruling is a huge win for the gig economy, thus allowing Uber, Lyft, DoorDash, and others to continue offering their valuable services.

Why am I withholding that cherished third cheer? Well, the state high court in 2018 sparked this disruptive fracas over independent contracting with its overreaching Dynamex decision. In that case, the court—also unanimously—concocted an "ABC Test" for determining whether companies can use contractors as workers. No need to go over the test's minutiae, but companies could only hire independent workers in narrow circumstances.

That sparked what became a six-year campaign by California Democrats and their union puppet masters to essentially shutter the state's entire freelance industry. Under the leadership of then-Assembly member Lorena Gonzalez—now appropriately the leader of a state union—the Legislature passed Assembly Bill 5 codifying the Dynamex ruling. Then the layoff notices hit the fan, as companies started dumping the state's freelance workers.

This was an effort to, as Democratic leaders described it, battle "wage theft"—supposed efforts by companies to get around the state's voluminous labor edicts and mandated benefit rules by hiring contractors and freelancers. In reality, it was a carefully orchestrated by the state's unions to crush the competition by reworking the alternative business model. Contractors and freelancers are hard to organize, so the unions did what they do best: destroy stuff.

It's easy to forget now, but the independent contracting ban cast a broad net, leading to disruptions in every sort of industry. Many workers already had employee benefits (the supposed reason for limiting contracting) but almost forced them to give up their extracurricular money-making activities. The ban threw musicians, actors, photographers and a host of others out of work.

Even worse, the state doubled down on A.B. 5 implementation in the midst of the pandemic, thus imperiling at-home work (and food deliveries) when most Americans were struggling to make ends meet during state-imposed stay-at-home orders.

It was vile. And it was made more so by the callous, "let them eat cake" attitudes of Gonzalez and other government-worker types who didn't care that most of their fellow citizens didn't have a taxpayer-provided paycheck to rely upon. Gonzalez famously tweeted, "These were never good jobs. No one has ever suggested that, even freelancers." Yet most freelancers I know prefer the flexibility of such work to 9-5 schedules in the salt mine or cubicle.

Survey after survey—not to mention the anecdotal evidence one gets from talking to, say, any Uber driver—showed that the vast majority of these drivers like the ability to set their own schedules and earn a little extra cash between other jobs or classes. The Legislature relented a bit, thus exempting more than 100 industry categories from A.B. 5 (though it refused to relent for the trucking industry, despite its importance).

And then the ride-sharing industry showed true moxie by qualifying Proposition 22 for a statewide vote. California's Democratic-leaning electorate supported that measure by a strong 59-41 percent margin, but the unions, Gov. Gavin Newsom, and Democratic leaders displayed a nearly Trumpian refusal to admit defeat and move on.

The companies challenged A.B. 5 on federal grounds, arguing (correctly, I believe) that the Legislature targeted these particular companies. A three-judge panel of the 9th Circuit Court of Appeals agreed, but that finding was overturned by an 11-judge panel. The U.S. Supreme Court passed on Uber's appeal—and the situation looked dismal from there. I didn't expect much from the California Supreme Court given its original ruling, but I was pleasantly surprised.

In its July 25 decision, the court "reaffirms that Proposition 22 does not infringe upon the California Legislature's authority to regulate workers' compensation systems," as the legal website JDSupra explained. These app-based ride-sharing and delivery companies can continue operating without turning their drivers into permanent employees. That's a huge relief for the industry and California consumers.

But the publication notes "the Legislature might consider extending workers' compensation benefits to drivers and making such benefits mandatory." Given the political might of the state's unions, I wouldn't put it past lawmakers to continue their attacks on this industry. At some point, however, even Democrats might want to say "enough already."

The entire episode brings up the obvious question: "Why"? For six years, the state has been trying to impose regulations on an industry that would undermine its fundamental model and obliterate jobs. They are telegraphing to others that if you develop a great idea this state will spend years trying to crush you. Maybe the California Supreme Court will bail you out eventually, but who has enough time, money and blood-pressure medicine to want to bother?

This column was first published in The Orange County Register.