The Brief

In a major victory for gig-work companies, the California Supreme Court today upheld a voter-approved law that allows Uber and other app makers to treat their drivers and delivery workers as independent contractors instead of employees.

About the decision

The decision on Proposition 22 was unanimous. Approved by 58% of California voters in 2020 and enacted the same year, Prop. 22 gave app-based gig workers some benefits but not full worker protections because the ballot initiative — which gig companies spent more than $200 million to pass — ensures they are not considered employees.

More than 1.4 million Californians are app-based gig workers for companies such as Uber, Lyft, DoorDash and Instacart, according to the industry’s latest estimates.

The court was not considering the pros and cons of the gig economy. During oral arguments in May in San Francisco, justices zeroed in on whether Prop. 22 was incompatible with California law, which gives the Legislature responsibility over a complete workers’ compensation system. By declaring gig workers independent contractors, Prop 22 made them ineligible for workers’ comp benefits. SEIU California, the Service Employees International Union that had sought to overturn the law on behalf of four gig workers, argued that this made the law unconstitutional.

Prop. 22 “does not preclude the electorate from exercising its initiative power to legislate on matters affecting workers’ compensation,” Justice Goodwin Liu wrote.

What's next for gig worker advocates

Advocates for gig workers said the ruling was a blow.

“This is a really tragic outcome,” said Veena Dubal, a law professor at UC Irvine who focuses on labor and inequality. “But it’s not the end of the road.” Dubal speculated that labor advocates could put together a proposition of their own, or municipalities and the state could adopt ordinances and laws that are more worker-friendly — such as making it illegal to set different wages for similar work based on algorithmic formulas.

Gig companies backed Prop. 22 in 2020 to win themselves an exclusion from a new state law known as Assembly Bill 5, which would have upended their business models by requiring them to consider their drivers and delivery workers as employees. Last month, Uber lost a legal battle to overturn AB 5 — meaning only Prop. 22 stood in the way of forcing ride-hailing and delivery app companies to comply with it.

What you should know about Prop. 22

Under Prop. 22, gig workers are promised guaranteed minimum earnings of 120% of minimum wage, health care stipends, occupational accident insurance and accidental death insurance. Many of the benefits come with stipulations:

• The guaranteed earnings are based on time on a “gig” and don’t include time workers spend waiting for a ride or delivery.
• The health care stipends are for certain eligible workers only, excluding those who qualify for public assistance, including Medi-Cal.
• The occupational accident insurance has a $1 million limit
• Gig workers are reimbursed for their mileage, although at less than the IRS-mandated rate employees receive — currently 35 cents a mile vs. 67 cents a mile. But this amount is included in the minimum earnings guarantee — it is not in addition to it.
• Because Prop. 22 will stand, app-based platform workers will continue to be ineligible for benefits such as sick pay, a minimum wage for all time worked, unemployment insurance and more.

Molly Weedn, spokesperson for the gig industry group Protect App-Based Drivers + Services, called the ruling “an overwhelming victory for voters’ rights and the integrity of our state’s initiative system.”

Gig workers vowed not to give up.

“We’ll continue to fight until we have justice for drivers and all workers,” said Nicole Moore, president of Los Angeles-based Rideshare Drivers United. Moore added that this ruling could mean “app companies are coming for all of our jobs, whether it’s in health care, construction, entertainment.”

This story was originally published by CalMatters. Sign up for their newsletters.

In 2019, first-year Gov. Gavin Newsom inherited a state flush with cash. With a $21.4 billion budget surplus to play with, an ambitious Newsom invested billions in affordable housing, child care and healthcare expansion while paying down the state’s debt and shoring up reserves.

The next governor won’t be that lucky.

When Newsom unveils his last spending plan as governor Friday, he will do so with the specter of a projected $18 billion deficit — the result of the state’s fast-growing spending, federal funding losses and heightened economic uncertainties under President Donald Trump’s administration.

The deficit could balloon to $35 billion annually in the next few years if state leaders don’t pursue long-term solutions, namely making sustainable revenue increases or cutting spending, according to the Legislative Analyst’s Office, the nonpartisan fiscal adviser to lawmakers.

But neither will be appealing options to Newsom and legislative leaders this year.

They have repeatedly resisted increasing taxes on average Californians and high-income earners alike — a politically dicey pitch to make in a state with high tax rates and increasing revenue. Spending cuts are equally painful to swallow, especially for Democrats running for re-election in November who have fought to expand services, such as Medi-Cal, that may now be rolled back.

For Newsom, a lame-duck governor with presidential aspirations, there is even less incentive to address the state’s long-term budget health through major policy changes, political strategists say.

“It’s not an uncommon occurrence in California for a departing governor to leave a note on the new governor’s desk that they’ve got a budget deficit,” said longtime Democratic consultant Garry South.

But how Newsom tackles the structural deficit will almost certainly have implications for his expected presidential bid. State Republicans, such as Assemblymember David Tangipa of Fresno, are already blaming the budget problem on Newsom’s mismanagement. “A Newsom presidency would be a fiscal and governance disaster of historic proportions,” Tangipa wrote in a December op-ed.

It’s the fourth consecutive year in Newsom’s tenure that the state is projecting a deficit even as revenue grows. In the past, state Democratic leaders resorted to temporary fixes such as internal borrowing, deferring payments, one-time cuts and drawing from California’s rainy day fund to avoid cutting into the social safety net.

But that cushion is deflating: The state’s reserve stands at $14 billion, half its peak balance, after two years of withdrawals. State leaders have borrowed more than $20 billion from other state funds, debts that will come due in later years. Continuing to rely on those options would leave the state “undeniably less prepared” for an economic downturn, the LAO warned.

“Eventually you are going to run out of Band-aids,” said Steve Maviglio, a Democratic strategist who worked for then-Gov. Gray Davis during a massive budget deficit. Newsom "has used every trick in the book, and after a certain point, there’s nothing left.”

More healthcare cuts to come?

Newsom has not indicated whether he’ll consider cuts to Medi-Cal, the state’s primary health insurance program for low-income residents. But as the state’s most expensive program, it is an attractive target. More than half of the $200 billion program’s funding comes from the federal government.

Last year, as Newsom and legislators scrambled to close a $12 billion budget gap, they froze new Medi-Cal enrollment for undocumented immigrants, charged immigrant enrollees a $30 monthly premium and delayed cutting certain benefits. The cost of Medi-Cal has been rising faster than expected, forcing the state Legislature to allocate $6.2 billion midyear to prevent a shortfall.

The decision was contentious, with some healthcare advocates and Democratic lawmakers slamming their leaders for creating a “two-tiered healthcare system” that deemed immigrants less worthy of quality coverage.

“That was an incredibly disappointing backslide,” said Amanda McAllister-Wallner, executive director of Health Access California, which advocates for universal healthcare.

This year, Trump’s budget reduced the federal government’s share of funding to Medi-Cal, requiring the state to pay more to provide the same benefits. California is projected to spend at least $1.3 billion more to implement that change, a figure that could reach $5 billion by fiscal year 2029-30, the LAO estimated.

The Martin Luther King Community Hospital in Los Angeles.

(

Pablo Unzueta

/

CalMatters

)

Assemblymember Mia Bonta, an Oakland Democrat who chairs the Assembly Health Committee, said solving the state’s budget crunch shouldn’t come at the expense of health care.

“California needs its state and federal leaders to look for more innovative solutions to fill the gaps, make healthcare affordable, and keep our families healthy,” she said in a statement that did not offer specific alternatives.

Any cuts to Medi-Cal could bring political consequences for Democrats who often pride themselves on expanding social services. Rolling back Medi-Cal could hurt Newsom’s legacy, too, since it was under him that the state began offering Medi-Cal to immigrants.

“Democrats are the party of expanding healthcare,” Maviglio said. “To slash it goes against everything they stand for.”

McAllister-Wallner acknowledged she isn’t optimistic about the budget outlook. But she said she hopes the state finds new revenue through taxing corporations instead of making cuts to vulnerable populations.

If “we are addressing this through cuts only, and cuts to the most vulnerable, that’s … not the leadership that we are looking for,” she said.

State leaders could also walk back some of last year’s funding commitments in other areas. While state lawmakers negotiated $500 million for homelessness to counties and delayed it until next year, it is not guaranteed. Newsom, who has blamed the state’s homelessness problem on local governments, could withhold the money.

Newsom also promised last year he’d reach a deal with Bay Area transit advocates over state funding. But last month, in light of the budget shortfall, Newsom urged advocates to dip into previously allocated dollars to save the regional transit network, instead of a $750 million loan the advocates had requested.

Taxing the rich a nonstarter for Newsom

It’ll be hard to muster the political will in Sacramento to raise taxes.

Former Assembly Speaker Anthony Rendon, a Los Angeles Democrat running for state superintendent of public instruction, said he’s long supported higher taxes on industries that have “skated away from taxation for a long time.”

But even the most progressive Democrats in California have had little appetite to raise taxes, he said, because many represent affluent areas such as Silicon Valley where their wealthy donors live.

Even when the state faced a projected $56 billion deficit over two years in 2023, Rendon said Democrats were “shrugging” at the problem and pointing to the state’s reserves as a solution, which he said reflected a culture of reliance on the rainy day fund.

This year, Newsom has already spoken out against a proposed labor-backed wealth tax ballot measure, consistent with his past opposition to similar proposals.

The ballot measure, titled “The 2026 Billionaire Tax Act” and filed with the state attorney general’s office in October, seeks to tack a one-time 5% tax on those with a net worth of at least $1 billion and use the money to fund the state’s healthcare and education programs. The effort is led by the SEIU-UHW, a powerful labor union representing healthcare workers, and St. John’s Community Health, one of the largest nonprofit healthcare providers in Los Angeles County.

State. Sen. Roger Niello, a Roseville Republican and vice chair of the Senate Budget Committee, applauded Newsom’s opposition to the proposed tax increase.

“To have a situation where we have developed an increasing deficit in the face of an economy that is not in recession, and revenues are increasing, it would seem to be silly to solve that by further increasing revenue,” he said.

While taxing the rich is a popular Democratic talking point, backing a proposal like that could mean alienating the wealthy donors Newsom will likely rely on for his presidential run.

There would also be no political gain for Newsom in his last year to stabilize the state’s progressive tax structure, which heavily relies on high-income earners, despite him promising to do so when he took office.

“He’s going to make more enemies doing it than he would not doing it,” Maviglio said.

This article was originally published on CalMatters and was republished under the Creative Commons Attribution-NonCommercial-NoDerivatives license.