California voters in twenty twenty adopted a ballot initiative Proposition twenty two that was critical for gig economy companies like lift Uber and DoorDash. But now the California Supreme Court has heard arguments in a case that threatens to strike it down. What is this legal fight about? Who is likely to win? And when will it play out? This is a Votes and Verdicts brief.
Welcome to this Votees and Verdicts podcast hosted by Bloomberg Intelligence, part of Bloomberg's Research department, comprised of five hundred analysts and strategists working across all major world markets. Our coverage includes over two thousand equities and credits, as well as outlooks on more than ninety industries and one hundred market indices, currencies, and commodities. In this podcast series, we talk about the
intersection of business policy and law. My name is Jenniferree, and I'm a senior litigation analyst with Bloomberg Intelligence covering any trust.
And I'm Matt Schuttenhelm, an analyst covering US litigation and policy in the TMT space.
Our Votes in Verdicts Brief series highlights one of our research reports on the Bloomberg terminal, giving listeners a quick takeaway to help grasp the key litigation or policy topic covered in our research. Today, my colleague Matt is going to talk about California's Proposition twenty two and why it's under threat. Matt, can you start by describing what Proposition twenty two is and why it's so important for companies that rely on gig workers in California?
Absolutely? Thanks, Jen, Yes.
So.
Prop twenty two was a California ballot initiative that the California voters adopted in the twenty twenty election, and the key thing that it did was that it classified AT based drivers in the state as independent contractors, not as employees. It's at a floor or their earnings, and it provided other benefits to them, but most importantly for the companies, it controls their costs. So if instead APP based drivers were employees, those costs per driver would likely be thousands
of dollars more per driver per year. We're talking about things like wages and expenses for hours works going beyond just their engage time, things like unemployment, insurance, and overtime. If that were the law, that would be extremely disruptive to the company's business model. So Proposition twenty two did very important work in that regard.
But I understand that it's under attacking court. Can you walk through what that legal fight is about.
Yeah, So, after the voters adopted this initiative in November twenty twenty, a lower court in California State in the state court system, in August twenty twenty one struck down the law as violating the California Constitution, and that judge effectively said that only the legislature, not the voters through a ballot initiative, can limit workers compensation, and so that basically struck down Proposition twenty two. But the ruling was
stayed during appeals, so it didn't immediately take effect. So that's where we are now, waiting for the appeals process to play out. That decision was appealed to a state intermediate appeals court, and in March of twenty twenty three, the appeals court reversed his decision by a two to one vote that effectively upheld Prop. Twenty two, and that could have been the end of the story. The California
Supreme Court denies review most of the time. The court could have just let that appeals court ruling stand, could have could have left Prop twenty two in place, but it didn't. One year ago, in June of twenty twenty three, the California Supreme Court announced that it would take this case, and in my view, that presented enormous risk Forft and Uber and door Dash, because usually the California Supreme Court
takes cases to reverse them. So even though in my view, Lift and Uber and the state had the stronger legal arguments in this case and I thought they would probably win, the Court's decision to take this case at all is in my view, a reason for caution and for really extreme risk for the companies as they fight this at the top levels in the state court system.
Right, and that outcome is coming because finally the California Supreme Court heard arguments on the case on May twenty first of this year. So how do you think they're going to rule on this?
Yeah? So exactly right. The case has now been fully briefed and the court did hear about forty five minutes of argument in late May. And I went into that argument thinking that, as I said, the companies in California had the stronger legal argument here, I had given them a sixty percent chance to win the case. But you know, there was real risk here in the fact that the
court took the case. But as that argument played out, I really think the companies are going to be okay here that the companies in California faced a couple of tough questions, but the vast majority of the difficult questions went to the other side. They went towards the plaintiffs who are bringing these cases. And we saw a substantial concern from a number of justices about limiting balid initiatives in the state, limiting the voter's ability to use this
process to change the law. That's really where I started in my analysis of the case, and I really didn't see a lot of justices at the court willing to disrupt what the voters enacted in twenty twenty. So at the end of the day, I think that's very, very likely that the court says that voters can use the ballot initiatives on these issues on these issues just as the legislature can, and that the California Constitution doesn't stand in the way.
So when do you think we'll see the decision from the California Supreme Court.
Yeah, so's That's one of the great things about California state law here is that it actually gives us a pretty clear answer to that question. So the court must release its decisions no later than ninety days after argument. So in this case, that makes August nineteenth the absolute
deadline for this decision. And I took a look at the court's recent pace and it almost always takes more than sixty days, and that's July twentieth here, so and on average, the court's taken about eighty days, and that's August ninth year. So investors in court watchers, I think you want to I want you think you want to circle late July the first half of August for what could be this very signific decision what I think will be a significant win for lift Uber and door Dash.
And one other good piece of good news on that the court actually gives us a heads up when its decision is coming. We should know one day before the decision is issued that it will come the next day. So again, look for that in late July or the first half of August.
Okay, So when that comes out, is it going to be the end of the story.
I think it's going to be a very big win for the companies, and it should go a long way to giving them certainty in California on this really important question. But I don't think it will be the end of the story ultimately. Ultimately, because a number of the questions at oral argument from the Supreme Court justices, we're focused on ways that the legislature could still give gig economy
drivers more compensation, more benefits despite Proposition twenty two. There's likely going to be a fight about that, and a number of justices, though seemed open to that sort of legislation, So it's hard to say exactly what shape that takes. And this is certainly a big milestone if the companies can win it, but I don't think I'm comfortable saying that it's the end of the story.
Matt. Thank you for that excellent quick overview of your legal research on California's Proposition twenty two. So we'll be watching in a few months to see how the California Supreme Court rules on this. That's today's Votes and Verdicts brief. For Matt's full report on the topic and all of our research, please visit bilaws on the Bloomberg terminal. Thanks for tuning in to votes and verdicts and enjoy the rest of your day or evening