Proposition 22, California’s voter-approved ballot measure that allowed rideshare and delivery network companies like Uber, Lyft, and DoorDash to classify drivers as independent contractors rather than employees, should remain state law, a divided three-judge appellate panel ruled last month.

The law had been struck down in 2021 by a lower court, but the state appealed. Prop 22, also known as the Protect App-Based Drivers and Services Act, is a 2020 ballot measure that received heavy financial backing from app-based companies. The law passed with 59 percent of the vote. 

Prop 22 was an industry response to 2019 state legislation, Assembly Bill 5, which set standards for classifying such workers as employees. In AB 5, the state legislature codified a California Supreme Court decision which put the burden on employers through the so-called “ABC test” to show that someone was an independent contractor and not an employee.

The question of whether a worker is an employee or an independent contractor is important because while employees are entitled to minimum wages, overtime, and work expenses, independent contractors are not.

Prop 22 exempts app-based companies’ drivers from the standards of AB 5 that classified them as employees, offering them alternative benefits instead. According to the Los Angeles Times, labor advocacy group Rideshare Drivers United has said drivers earnings and protections have eroded since voters approved Prop 22. Gig companies say the opposite, that Proposition 22 has boosted drivers earnings.

The Protect App-Based Drivers And Services Coalition celebrated the ruling as a “historic victory for the nearly 1.4 million drivers who rely on the independence and flexibility of app-based work to earn income, and for the integrity of California’s initiative system.”

Meanwhile, SEIU California and SEIU United Service Workers West president David Huerta said: “Every California voter should be concerned about corporations’ growing influence in our democracy and their ability to spend millions of dollars to deceive voters and buy themselves laws.”

The Times reported that app-based ride-sharing and delivery companies spent more than $200 million marketing Prop 22 to Californians.

There is one silver lining for gig workers: the appeals court ruled that one part of Prop 22 should remain invalid, and it’s a section that defined legislation on certain subjects, including unionization, as amendments to the proposition. Prop 22 says amendments need to pass by a seven-eighths majority in the California legislature, so having that section struck down seemingly opens the door for lawmakers to pass a law giving gig workers the right to unionize.

“If the Legislature wanted to enact collective bargaining legislation today, it would be free to do so by a simple majority,” said Stacey Leyton, an attorney with Altshuler Berzon, a law firm representing the drivers and SEIU in challenging the ballot measure, told Cal Matters. 

But a lawyer representing the Protect App-Based Drivers And Services Coalition told Cal Matters that a collective-bargaining law passed with less than a supermajority would be challenged in court.

“It would be up to a court to decide at that point if it is an amendment or not,” said Kurt Oneto, an attorney with Nielsen Merksamer, who is representing the coalition. 

If you work for an app-based company you believe you’ve been misclassified as an independent contractor, you may be able to challenge your employment status in court. 

Keller Grover is here to help workers with their employment-related disputes. If your employer isn’t treating you fairly, we can help you better understand your rights, protections and options. In more than 25 years litigating fraud and employment cases, we have recovered hundreds of millions of dollars for clients and class members. 

Contact us today for a free, confidential consultation. 

 

California employers can require workers to sign mandatory arbitration agreements as a condition of employment following a U.S. Court of Appeals ruling last month.

The Ninth Circuit ruled that California Assembly Bill 51 banning “forced arbitration” clauses is preempted by federal law, the Federal Arbitration Act. The bill attempted to work around the FAA, saying existing arbitration agreements were enforceable but that new employees must be given the choice of signing one.

AB 51 would have been a welcome change for job applicants presented with mandatory arbitration. If workers decline to sign these agreements, they probably won’t be hired. If they do sign, they can’t take their employer to court to seek remedies and compensation for violations of the law. Under forced arbitration, the employees’ only recourse is a secret proceeding often tilted in favor of the employer.

Forced arbitration also hurts lower-wage workers disproportionately. The National Employment Law Center found in 2019 that U.S. workers earning less than $13 an hour who were subject to employee-imposed forced arbitration were owed $9.27 billion in unpaid wages. Aspects of employment law covered by arbitration include minimum wage, off-the-clock duties, and overtime.

The appeals court ruled 2-1 in striking down AB 51 with U.S. Circuit Judge Sandra Ikuta, a George W. Bush appointee, writing in the majority opinion.

“Because the FAA’s purpose is to further Congress’s policy of encouraging arbitration, and AB 51 stands as an obstacle to that purpose, AB 51 was therefore preempted,” she wrote for the majority.

“AB 51 does not expressly bar arbitration agreements. There is no doubt, though, that AB 51 disfavors the formation of agreements that have the essential terms of an arbitration agreement. Because a person who agrees to arbitrate disputes must necessarily waive the right to bring civil actions regarding those disputes in any other forum, AB 51 burdens the defining feature of arbitration agreements.”

In his dissent, U.S. Circuit Judge Carlos Lucero, a Bill Clinton appointee, said the Supreme Court and the enactors of the FAA always intended that “arbitration is a matter of contract and agreements to arbitrate must be voluntary and consensual.” Clearly, the modern day employment arbitration agreement is neither voluntary nor consensual.

The California Attorney General’s Office could ask the full Ninth Circuit or the U.S. Supreme Court to review the ruling.

Despite the ruling delivering a blow to workers’ rights in California, some recent developments have benefited employees.

Last year, an amendment to the FAA became law that excludes allegations of sexual assault or harassment from forced arbitration agreements. Under the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, victims can refuse arbitration and can pursue their claims in court so that companies can’t hide alleged misconduct in private proceedings.

And earlier this year, the Federal Trade Commission proposed a new rule that would prohibit employers from imposing noncompete clauses on workers, which would give them options to take jobs with better pay and working conditions, potentially raising wages.

The Federal Trade Commission in January proposed a new rule that would prohibit employers from imposing noncompete clauses on workers.

These clauses, which block workers from taking a job at a competing employer within a period of time or within a geographic location, are already unenforceable in California as well as in two other states, North Dakota and Oklahoma.

According to the FTC, one in five American workers—about 30 million people—are still subject to noncompete clauses. Under these agreements, workers lose opportunities to seek higher pay and better working conditions, and companies lose opportunities to hire qualified candidates.

The proposed rule would state that noncompete clauses are an unfair method of competition, would ban employers from entering into noncompete clauses with their workers, including independent contractors, and would rescind existing noncompete clauses and require employers to actively inform workers the contracts aren’t in effect.

The FTC estimates the rule would:

• Increase workers’ earnings by nearly $300 billion per year
• Save consumers up to $148 billion annually on health care costs
• Double the number of companies founded by a former worker in the same industry
• Close racial and gender wage gaps by 3.6 to 9.1 percent

The agency is also seeking public comment on:

• Whether franchisees should be covered
• Whether senior executives should be exempt
• Whether low- and high-wage workers should be treated differently under the rule 

The U.S. Chamber of Commerce issued a statement asking the FTC to extend the comment period for an additional 60 days after March 10. The chamber’s statement also questioned whether the FTC has the legal authority to issue such a rule.

“This rulemaking, as the FTC itself acknowledges, will impact a significant portion of the economy,” the statement said. “Given the breadth of the rule, a sufficient comment period is needed to ensure the regulated community can fully assess its effects.

“Moreover, there are significant legal questions that must be addressed by commenters.”

Under California’s Business & Professions Code section 16600, “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”

It’s also against California public policy to fire an employee for refusing to sign an agreement containing a void noncompete provision, and doing so exposes an employer to wrongful termination liability. Moreover, the California Court of Appeals has extended that prohibition to employers that fire or refuse to hire someone because that person has signed an illegal noncompete agreement with another company.

Contrary to what some people think, there is no “trade secrets” exception to the blanket ban on employee noncompetes. Companies may prohibit former employees from using the company’s confidential information to benefit a competitor, but may not prevent an employee from going to work for the competitor in order to protect that confidential information.

Recent changes have made California law even more protective of employees. If you have signed or are being asked to sign a noncompete agreement, or are being threatened with a lawsuit based on such an agreement, contact Keller Grover for a consultation on your rights.

A December ruling by the National Labor Relations Board paves the way for broader compensation awards to wrongfully terminated employees and other victims of unfair labor practices.

In a 3-2 decision issued in Thryv, Inc., the NLRB clarified its “make-whole” remedy to include payment for “direct or foreseeable” harm suffered as a result of labor law violations. 

In addition to direct costs such as the loss of earnings and benefits, the ruling says victims of unfair labor practices must be compensated for significant financial costs that are a foreseeable result of the unfair labor practices, such as medical expenses incurred because of a loss of insurance coverage.

“‘Make-whole relief’” is more fully realized when it consistently compensates affected employees for all direct or foreseeable pecuniary harms that result from a respondent’s unfair labor practice,” the board wrote in its ruling.

In Thryv, the NLRB ruled the company violated labor law by failing and refusing to respond to requests for information made by the union regarding layoffs, and for wrongfully laying off six employees without notifying the union and giving it an opportunity to bargain. Thryv, Inc. is a marketing and software company that sells Yellow Pages advertising as well as a computer application for small businesses.

According to Bloomberg Law, the decision means the NLRB will consider the economic consequences of labor law violations in any case that calls for make-whole relief, not just the most egregious cases. The general counsel’s office, which prosecutes unfair labor practice cases, will present evidence on economic harm. Employers can challenge the amount, argue that the harm wasn’t direct or foreseeable, or contend that the harm would’ve occurred regardless of the unlawful conduct.

The Thryv ruling cited a previous NLRB case, Voorhees Care & Rehabilitation Center, in which NLRB Chairman Lauren McFerran “listed ‘a myriad of other possible examples’ of unredressed pecuniary harms suffered by affected employees: Following an unlawful discharge, for example, an employee may be faced with interest and late fees on credit cards, or penalties if she must make early withdrawals from her retirement account in order to cover her living expenses. She might even lose her car or her home, if she is unable to make loan or mortgage payments. As a result of an unfair labor practice, discriminatees could also face increased transportation or childcare costs.”

“Employees are not made whole until they are fully compensated for financial harms that they suffered as a result of unlawful conduct,” McFerran said in a release announcing the decision. “The Board clearly has the authority to comprehensively address the effects of unfair labor practices. By standardizing the Board’s make-whole relief to fully include the direct or foreseeable financial harms suffered by affected employees we will better serve the important goals of the National Labor Relations Act.”

The NLRB decision fell along party lines, with the three board members appointed by Democrats voting in the majority.

The two Republican members dissented, foreshadowing legal challenges to the ruling. They argued that even if the NLRB had the authority to compensate employees for all foreseeable losses indirectly caused by an unfair labor practice, it wouldn’t “be prudent to attempt to do so.”

“Any such effort will inevitably spark a wide-ranging compliance inquiry into a discriminatee’s financial circumstances and past financial decisions,” the dissenters wrote. “Such proceedings would be intrusive and potentially deeply embarrassing for discriminatees. They would also be time-consuming and would unduly prolong compliance proceedings and thereby delay the day when the back pay claimants would receive any relief.

“In our view, the possible benefits of this course of action are too remote and the costs too high to make it worth pursuing, even if it were permissible to do so.”

Keller Grover’s labor attorneys pursue justice for workers who have been treated unfairly by their employers, advocating for clients whose issues may pertain to wage theft, discrimination, harassment, wrongful termination, breach of contract, disability, and matters involving the Equal Employment Opportunity Commission (EEOC). 

We can help you better understand your rights, protections and options. Contact us today for a free, confidential consultation.