Castellanos v. State of California

Facts and statutory framework

Article XIV, section 4 of the California Constitution vests the Legislature “with plenary power, unlimited by any provision of this Constitution, to create, and enforce a complete system of workers’ compensation, by appropriate legislation,” and declares that system to be “the social public policy of this State.” (16 Cal.5th at pp. 596–597.) Workers’-compensation coverage is “‘wholly statutory’” and generally turns on the existence of an employment relationship. (Id. at p. 597; Lab. Code, § 3600, subd. (a).)

In 2019, the Legislature enacted Assembly Bill 5 to combat “[t]he misclassification of workers as independent contractors,” codifying the “ABC test” of Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903, 916–917, under which a hiring entity must prove all three prongs — freedom from control, work outside the usual course of the hiring entity’s business, and an independently established trade — to treat a worker as a contractor. (16 Cal.5th at p. 597; Stats. 2019, ch. 296; Lab. Code, § 2775, subd. (b)(1).) Applying that framework, the Court of Appeal in People v. Uber Technologies, Inc. (2020) 56 Cal.App.5th 266, 273, 297, affirmed a preliminary injunction against classifying rideshare drivers as contractors, observing it had “little doubt the Legislature contemplated” such drivers “would be treated as employees.” (16 Cal.5th at pp. 597–598.)

Proposition 22, approved by 58.6 percent of voters in November 2020, responded by enacting Business and Professions Code sections 7448 to 7467. (16 Cal.5th at p. 598.) Section 7451 provides that, “[n]otwithstanding any other provision of law,” an app-based driver “is an independent contractor and not an employee” so long as the network company does not set the driver’s hours, require acceptance of particular requests, restrict work for competing platforms (outside engaged time), or restrict other lawful work. (Id. at p. 598.) In exchange, network companies must provide enumerated benefits — a guaranteed compensation floor, a quarterly health-care subsidy, and occupational-accident insurance. (Id. at pp. 598–599; §§ 7453–7455.) Two structural provisions proved central to the dispute: section 7465 permits legislative amendment only “by a statute passed in each house … [by] seven-eighths of the membership” that “is consistent with, and furthers the purpose of, this chapter,” while declaring that “[a]ny statute that amends Section 7451 does not further the purposes of this chapter”; and section 7467 makes section 7451 non-severable, so that invalidating it would topple the entire measure. (16 Cal.5th at p. 599.)

Procedural history

Plaintiffs petitioned for a writ of mandate in Alameda County Superior Court, contending that Proposition 22 removes app-based drivers from the “complete system of workers’ compensation” and unconstitutionally constrains the Legislature’s future authority. (16 Cal.5th at p. 599.) The trial court agreed, characterizing section 7451 as “an unconstitutional continuing limitation on the Legislature’s power,” reasoning that the people may restrict a “plenary” and “unlimited” legislative power only by constitutional amendment, not by initiative statute; because section 7451 is non-severable, the court invalidated Proposition 22 in its entirety. (Id. at pp. 599–600.)

A divided Court of Appeal reversed in relevant part, holding that the voters and the Legislature “jointly and severally” may create a workers’-compensation system and that, under Independent Energy Producers Assn. v. McPherson (2006) 38 Cal.4th 1020, article XIV, section 4 does not bar the initiative. (Castellanos v. State of California (2023) 89 Cal.App.5th 131, 150, 155, 157.) Justice Streeter dissented in part, viewing Proposition 22 as “a sub rosa attempt to amend the Constitution in the guise of statutory change” that, “on this record,” had to be resolved “in favor of the Legislature.” (Id. at p. 178 (conc. & dis. opn. of Streeter, J.).) The Supreme Court granted review and limited the issue to whether section 7451 conflicts with article XIV, section 4 and therefore, by Proposition 22’s own non-severability terms, requires the measure “be deemed invalid in its entirety.” (16 Cal.5th at pp. 600–601.)

Issue

Does Business and Professions Code section 7451 — by classifying app-based drivers as independent contractors and thereby removing them from default workers’-compensation eligibility — conflict with the Legislature’s “plenary power, unlimited by any provision of this Constitution,” over workers’ compensation under article XIV, section 4, such that the provision (and, by non-severability, all of Proposition 22) must fall? (16 Cal.5th at pp. 596, 601.)

Holding

Reasoning

1. The “unlimited” clause is ambiguous; McPherson controls. The Court anchored its analysis in McPherson, the only other decision construing a constitutional grant of legislative “plenary power, unlimited by … this Constitution” — article XII, section 5 (Public Utilities Commission). McPherson held that grant is not exclusive of the initiative power. (16 Cal.5th at pp. 601–602; McPherson, supra, 38 Cal.4th at pp. 1024, 1032.) A literal reading of “unlimited” was untenable because it would free workers’-compensation legislation from every other constitutional check (including the Governor’s veto), so the clause “‘could not reasonably be interpreted only as having the effect of precluding the people’s exercise of their reserved initiative power.’” (16 Cal.5th at pp. 602–603; McPherson, at p. 1036.) The initiative power is itself constitutionally reserved (Cal. Const., art. IV, § 1) and is construed liberally, with doubts resolved in its favor. (16 Cal.5th at p. 602; Associated Home Builders etc., Inc. v. City of Livermore (1976) 18 Cal.3d 582, 591.)

Rejecting plaintiffs’ distinctions. Plaintiffs argued that, unlike article XII, section 5 (adopted in 1911 alongside the initiative), the article XIV “unlimited” clause was added in 1918 and so necessarily contemplated the existing initiative power. The Court found the chronology unpersuasive: it “provides no basis to single out the initiative power from other constitutional checks,” and it remained “‘most improbable’” that the 1918 voters silently meant to curtail the initiative. (16 Cal.5th at pp. 602–603.) The Court likewise rejected the argument that “by appropriate legislation” confines the clause to the initiative, reasoning that the phrase “‘does not change the analysis’” and that, under article II, section 10(c), “legislation” amending an initiative statute is itself a bill that must be approved by the voters unless the initiative provides otherwise. (Id. at pp. 603–604.) The Court concluded that the “unlimited” clause “is ambiguous and that there is no textual or historical basis to construe it to apply solely to the initiative power.” (Id. at p. 604.)

2. The 1918 history confirms a narrow purpose. Reviewing the enactment history — the voluntary Roseberry Act (1911), the compulsory Boynton Act (1913), and the constitutional doubts cast by Western Indemnity Co. v. Pillsbury (1915) 170 Cal. 686 — the Court reaffirmed Mathews v. Workmen’s Compensation Appeals Board (1972) 6 Cal.3d 719, 734–735, that the 1918 amendment served “‘the sole purpose of removing all doubts as to the constitutionality of the then existing workmen’s compensation statutes.’” (16 Cal.5th at pp. 604–606.) Nothing in that history shows an intent to limit the initiative power, and the “social public policy” language “does not impose a substantive requirement that the workers’ compensation system cover any particular group of workers.” (Id. at p. 606.)

3. No legislative “first-mover advantage.” The Court acknowledged that section 7451 “contradicts Assembly Bill 5’s classification of app-based drivers as employees,” a conflict McPherson had not addressed. (16 Cal.5th at p. 607.) But because the article XIV, section 4 power is not exclusive, it “would unduly restrict the initiative power to give the Legislature what would essentially be a first-mover advantage, precluding the electorate from undoing any action the Legislature takes.” (Ibid.) The initiative power “includes ‘the power to abrogate existing [laws],’” so the people may alter workers’-compensation policy without offending article XIV, section 4. (Ibid.; California Redevelopment Assn. v. Matosantos (2011) 53 Cal.4th 231, 255.)

4. Section 7451 does not, by its terms, limit future legislation. The Court emphasized the narrowness of its holding. Section 7451 “says nothing about workers’ compensation”; it merely classifies drivers as contractors, who are ineligible only “[a]gainst the backdrop of existing law.” (16 Cal.5th at pp. 607–608; Lab. Code, § 3600, subd. (a).) The Court deliberately reserved the structural questions: whether section 7465’s seven-eighths amendment requirement is itself “constitutionally problematic” under County of Los Angeles v. State of California (1987) 43 Cal.3d 46, 57–60; whether future legislation restoring coverage would be an “amendment” of section 7451 triggering article II, section 10(c)’s voter-approval rule; and the “outer bounds” of the initiative power over workers’ compensation. (16 Cal.5th at pp. 607, 609–610.) Resolving the limited question, it sufficed “to conclude that section 7451 does not itself restrict the Legislature’s authority … or otherwise conflict with article XIV, section 4.” (Id. at p. 610.)

Significance

Castellanos is the capstone of the gig-economy classification arc — Dynamex (ABC test) → Assembly Bill 5 (codification) → People v. Uber (enforcement) → Proposition 22 (electoral carve-out) → Castellanos (constitutional validation). Its doctrinal contribution is about who may set classification policy, not what that policy should be: the decision confirms that the electorate’s reserved initiative power runs concurrently with the Legislature’s plenary authority, even over a subject the Constitution commits to the Legislature in sweeping terms. For employment practice, the practical effect is a stable, sector-specific exception: app-based rideshare and delivery drivers within Proposition 22’s defined scope are independent contractors as a matter of law, while the Dynamex/Assembly Bill 5 ABC test continues to govern the classification of essentially every other California worker.

Key quotes

“[S]ection 7451 does not conflict with article XIV, section 4 because the latter provision does not preclude the electorate from exercising its initiative power to legislate on matters affecting workers’ compensation.” (Castellanos, supra, 16 Cal.5th at p. 596.)

“[I]n light of our conclusion that the article XIV, section 4 power is not exclusive, it would unduly restrict the initiative power to give the Legislature what would essentially be a first-mover advantage, precluding the electorate from undoing any action the Legislature takes …. The power of initiative includes ‘the power to abrogate existing [laws].’” (Castellanos, supra, 16 Cal.5th at p. 607.)

Read the full opinion (official slip opinion) →

Practice pointer

Open questions

The Court expressly left open the most consequential structural issues. First, whether section 7465’s requirement that amendments pass by a seven-eighths supermajority — coupled with the declaration that any statute amending section 7451 categorically “does not further the purposes of this chapter” — unconstitutionally impairs the Legislature’s future authority under the reasoning of County of Los Angeles. (16 Cal.5th at pp. 609–610.) Second, whether legislation restoring workers’-compensation eligibility to app-based drivers would constitute an “amendment” of section 7451 that triggers article II, section 10(c)’s voter-approval requirement. (Id. at p. 608.) Third, the “outer bounds” of the initiative power over workers’ compensation, and whether article XIV, section 4 places any limits on it. (Id. at p. 607.) The Court also declined to decide whether Assembly Bill 1766 (Stats. 2023, ch. 133) already created “a direct and irreconcilable conflict” with section 7451. (Id. at p. 610.) Each will likely return to the Court once the Legislature acts.