Speaker 1: California voters in twenty twenty adopted a ballot initiative Proposition
Speaker 1: twenty two that was critical for gig economy companies like
Speaker 1: lift Uber and DoorDash. But now the California Supreme Court
Speaker 1: has heard arguments in a case that threatens to strike
Speaker 1: it down. What is this legal fight about? Who is
Speaker 1: likely to win? And when will it play out? This
Speaker 1: is a Votes and Verdicts brief.
Speaker 2: Welcome to this Votees and Verdicts podcast hosted by Bloomberg Intelligence,
Speaker 2: part of Bloomberg's Research department, comprised of five hundred analysts
Speaker 2: and strategists working across all major world markets. Our coverage
Speaker 2: includes over two thousand equities and credits, as well as
Speaker 2: outlooks on more than ninety industries and one hundred market indices, currencies,
Speaker 2: and commodities. In this podcast series, we talk about the
Speaker 2: intersection of business policy and law. My name is Jenniferree,
Speaker 2: and I'm a senior litigation analyst with Bloomberg Intelligence covering
Speaker 2: any trust.
Speaker 1: And I'm Matt Schuttenhelm, an analyst covering US litigation and
Speaker 1: policy in the TMT space.
Speaker 2: Our Votes in Verdicts Brief series highlights one of our
Speaker 2: research reports on the Bloomberg terminal, giving listeners a quick
Speaker 2: takeaway to help grasp the key litigation or policy topic
Speaker 2: covered in our research. Today, my colleague Matt is going
Speaker 2: to talk about California's Proposition twenty two and why it's
Speaker 2: under threat. Matt, can you start by describing what Proposition
Speaker 2: twenty two is and why it's so important for companies
Speaker 2: that rely on gig workers in California?
Speaker 1: Absolutely? Thanks, Jen, Yes.
Speaker 2: So.
Speaker 1: Prop twenty two was a California ballot initiative that the
Speaker 1: California voters adopted in the twenty twenty election, and the
Speaker 1: key thing that it did was that it classified AT
Speaker 1: based drivers in the state as independent contractors, not as employees.
Speaker 1: It's at a floor or their earnings, and it provided
Speaker 1: other benefits to them, but most importantly for the companies,
Speaker 1: it controls their costs. So if instead APP based drivers
Speaker 1: were employees, those costs per driver would likely be thousands
Speaker 1: of dollars more per driver per year. We're talking about
Speaker 1: things like wages and expenses for hours works going beyond
Speaker 1: just their engage time, things like unemployment, insurance, and overtime.
Speaker 1: If that were the law, that would be extremely disruptive
Speaker 1: to the company's business model. So Proposition twenty two did
Speaker 1: very important work in that regard.
Speaker 2: But I understand that it's under attacking court. Can you
Speaker 2: walk through what that legal fight is about.
Speaker 1: Yeah, So, after the voters adopted this initiative in November
Speaker 1: twenty twenty, a lower court in California State in the
Speaker 1: state court system, in August twenty twenty one struck down
Speaker 1: the law as violating the California Constitution, and that judge
Speaker 1: effectively said that only the legislature, not the voters through
Speaker 1: a ballot initiative, can limit workers compensation, and so that
Speaker 1: basically struck down Proposition twenty two. But the ruling was
Speaker 1: stayed during appeals, so it didn't immediately take effect. So
Speaker 1: that's where we are now, waiting for the appeals process
Speaker 1: to play out. That decision was appealed to a state
Speaker 1: intermediate appeals court, and in March of twenty twenty three,
Speaker 1: the appeals court reversed his decision by a two to
Speaker 1: one vote that effectively upheld Prop. Twenty two, and that
Speaker 1: could have been the end of the story. The California
Speaker 1: Supreme Court denies review most of the time. The court
Speaker 1: could have just let that appeals court ruling stand, could
Speaker 1: have could have left Prop twenty two in place, but
Speaker 1: it didn't. One year ago, in June of twenty twenty three,
Speaker 1: the California Supreme Court announced that it would take this case,
Speaker 1: and in my view, that presented enormous risk Forft and
Speaker 1: Uber and door Dash, because usually the California Supreme Court
Speaker 1: takes cases to reverse them. So even though in my view,
Speaker 1: Lift and Uber and the state had the stronger legal
Speaker 1: arguments in this case and I thought they would probably win,
Speaker 1: the Court's decision to take this case at all is
Speaker 1: in my view, a reason for caution and for really
Speaker 1: extreme risk for the companies as they fight this at
Speaker 1: the top levels in the state court system.
Speaker 2: Right, and that outcome is coming because finally the California
Speaker 2: Supreme Court heard arguments on the case on May twenty
Speaker 2: first of this year. So how do you think they're
Speaker 2: going to rule on this?
Speaker 1: Yeah? So exactly right. The case has now been fully
Speaker 1: briefed and the court did hear about forty five minutes
Speaker 1: of argument in late May. And I went into that
Speaker 1: argument thinking that, as I said, the companies in California
Speaker 1: had the stronger legal argument here, I had given them
Speaker 1: a sixty percent chance to win the case. But you know,
Speaker 1: there was real risk here in the fact that the
Speaker 1: court took the case. But as that argument played out,
Speaker 1: I really think the companies are going to be okay
Speaker 1: here that the companies in California faced a couple of
Speaker 1: tough questions, but the vast majority of the difficult questions
Speaker 1: went to the other side. They went towards the plaintiffs
Speaker 1: who are bringing these cases. And we saw a substantial
Speaker 1: concern from a number of justices about limiting balid initiatives
Speaker 1: in the state, limiting the voter's ability to use this
Speaker 1: process to change the law. That's really where I started
Speaker 1: in my analysis of the case, and I really didn't
Speaker 1: see a lot of justices at the court willing to
Speaker 1: disrupt what the voters enacted in twenty twenty. So at
Speaker 1: the end of the day, I think that's very, very
Speaker 1: likely that the court says that voters can use the
Speaker 1: ballot initiatives on these issues on these issues just as
Speaker 1: the legislature can, and that the California Constitution doesn't stand
Speaker 1: in the way.
Speaker 2: So when do you think we'll see the decision from
Speaker 2: the California Supreme Court.
Speaker 1: Yeah, so's That's one of the great things about California
Speaker 1: state law here is that it actually gives us a
Speaker 1: pretty clear answer to that question. So the court must
Speaker 1: release its decisions no later than ninety days after argument.
Speaker 1: So in this case, that makes August nineteenth the absolute
Speaker 1: deadline for this decision. And I took a look at
Speaker 1: the court's recent pace and it almost always takes more
Speaker 1: than sixty days, and that's July twentieth here, so and
Speaker 1: on average, the court's taken about eighty days, and that's
Speaker 1: August ninth year. So investors in court watchers, I think
Speaker 1: you want to I want you think you want to
Speaker 1: circle late July the first half of August for what
Speaker 1: could be this very signific decision what I think will
Speaker 1: be a significant win for lift Uber and door Dash.
Speaker 1: And one other good piece of good news on that
Speaker 1: the court actually gives us a heads up when its
Speaker 1: decision is coming. We should know one day before the
Speaker 1: decision is issued that it will come the next day.
Speaker 1: So again, look for that in late July or the
Speaker 1: first half of August.
Speaker 2: Okay, So when that comes out, is it going to
Speaker 2: be the end of the story.
Speaker 1: I think it's going to be a very big win
Speaker 1: for the companies, and it should go a long way
Speaker 1: to giving them certainty in California on this really important question.
Speaker 1: But I don't think it will be the end of
Speaker 1: the story ultimately. Ultimately, because a number of the questions
Speaker 1: at oral argument from the Supreme Court justices, we're focused
Speaker 1: on ways that the legislature could still give gig economy
Speaker 1: drivers more compensation, more benefits despite Proposition twenty two. There's
Speaker 1: likely going to be a fight about that, and a
Speaker 1: number of justices, though seemed open to that sort of legislation,
Speaker 1: So it's hard to say exactly what shape that takes.
Speaker 1: And this is certainly a big milestone if the companies
Speaker 1: can win it, but I don't think I'm comfortable saying
Speaker 1: that it's the end of the story.
Speaker 2: Matt. Thank you for that excellent quick overview of your
Speaker 2: legal research on California's Proposition twenty two. So we'll be
Speaker 2: watching in a few months to see how the California
Speaker 2: Supreme Court rules on this. That's today's Votes and Verdicts brief.
Speaker 2: For Matt's full report on the topic and all of
Speaker 2: our research, please visit bilaws on the Bloomberg terminal. Thanks
Speaker 2: for tuning in to votes and verdicts and enjoy the
Speaker 2: rest of your day or evening