© 2023 American Payroll Institute, Inc. Proposition Defining App-Based Drivers as Independent Contractors Survives California Court A California Court of Appeal ruled against challenges to a voter initiative, Proposition 22 (Prop 22), which classifies app-based drivers as independent contractors for all purposes [Castellanos v. California, No. A163655 (Calif. Ct. App., 3-13-23)]. This means that the drivers can continue to be classified as independent contractors. Prop 22 California voters passed Prop 22 through the state initiative process in 2020. An initiative allows voters to pass laws by voting on the proposals during an election. Prop 22 defines app-based drivers as independent contractors. The initiative was in response to California’s enactment of the ABC test. Under the test, a worker is an employee unless specific criteria are met to define a worker as an independent contractor. An “app-based driver” is a worker for a transportation or delivery network company ride- share apps like Uber or delivery apps like GrubHub that connects drivers with passengers or customers to deliveries. Workers’ compensation challenge fails The California Constitution gives the legislature the authority to “create, and enforce a complete system of workers compensation,” “unlimited by any provision in [the] Constitution.” The union that filed the lawsuit argued that Prop 22 intrudes on this authority. The court disagreed, finding that “legislature” refers to both the government and the voter initiative process. Single-subject rule challenge denied An initiative cannot contain more than one subject. This is because, unlike the legislative branch, which can debate and amend new laws, voters can only vote for or against a proposition on the ballot. The single-subject rule also helps prevent initiatives from containing sections that do not relate to the overall purpose, which the voters may not have intended to enact. The test for the subject of an initiative is whether the various provisions are “reasonably related to a common theme or purpose.” The union bringing the lawsuit challenged that the amendment-restricting provision violated the single- subject rule. The court disagreed with this narrow “subject” of the initiative: driver classification. Rather, the court found that the common theme was “the creation of a new balance of benefits and obligations for app-based drivers in lieu of either traditional employment or traditional independent contractor status.” Separation of powers challenge succeeds Last, the union challenged that the initiative violates the constitutional separation of powers between the branches of government. Prop 22, it argued, restricts both the legislature’s ability to pass future laws and the judiciary’s ability to define the law. On both points the court agreed. The 7/8th majority restriction, or passing amendments only with voter approval, would prevent the legislature from enacting new laws. Only the judiciary can provide legal interpretation, including what constitutes an “amendment.” By defining what future legislation would be an “amendment” to Prop 22, the initiative restricted and violated the judiciary’s authority. Prop 22 is still in effect, but these provisions will be removed: restricting the state legislature’s power to permit the drivers to collectively bargain for certain benefits and authorizing certain rules relating to the drivers. New Jersey Court Finds That PTO Is Not Considered Wages Due When Employee Is Involuntarily Terminated A New Jersey appellate court found that paid time off (PTO) is not a “wage” and, therefore, not subject to the restrictions on paying involuntarily terminated employees [HMH Hospitals v. Warren, No. A-2560-21 (N.J. Super. Ct. App. Div., 2-22-23)]. In the case, an employee was terminated following a disciplinary action for her misconduct. The employer’s PTO policy stated that accrued PTO was not payable on termination if the cause was a disciplinary action. The court held that the employer was free to set the terms of the policy because PTO is not classified as a “wage” under state wage and hour laws. Background The employee worked as a certified nurse’s assistant for the employer hospital for three years. The hospital provided a “Time Off with Pay: PTO” policy setting the method for PTO accrual and conditions for payment. Employees accrued PTO based on the number of hours worked, years of employment, and job classification. The policy denied payment for unused but accrued PTO if the employee was terminated based on a disciplinary action. In this case, following the employee’s misconduct and subsequent termination, she requested her accrued but unused PTO and sued when the employer April 3, 2023 Volume 25 Issue 7
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