Lost in bigger election news, a major ballot initiative in California sought to determine the future of the gig economy. California were asked to decide to implement or reject Proposition 22 as part of their ballots on November 3, 2020. Proposition 22 sought to re-define the way California classifies workers of ride-sharing apps. Uber, Lyft, and other services spent approximately two hundred fifty million dollars seeking to convince the California public to adopt the measure. They succeeded. While not all ballots have been counted yet, Proposition 22 currently has a seventeen point lead and all major news organizations have declared that it will pass.
Proposition 22-AB5 And The Independent Contractor Test
Proposition 22 is a direct response to a new bill enacted by the California Legislature in 2019. That law, known as AB5, significantly strengthened the test to determine whether a worker qualified or as a independent contractor or should instead be classified as an employee. AB5 impacted a wide variety of industries, from Uber and Lyft drivers to many freelancing creative professionals. Under the terms of AB5, to classify a worker as an independent contractor, a company had to show that the worker operated free from control, performed services that were not part of the company’s regular business, and customarily engaged in that service as an independently established trade, occupation, or business.
Impacts On The Gig Economy
The law would have resulted in almost all Lyft and Uber drivers being classified as employees, costing those companies large amounts of money in payroll taxes and benefits that were currently being born by the drivers. The companies responded with Proposition 22, which sought to specifically declare that app-based drivers were independent contractors and not employees.
A Ripple Effect Of Engaged Time
Proposition 22 does include some concessions to those who worry about the rights of the drivers for these companies. The law requires companies to provide app-based drivers with a healthcare subsidy. The subsidy is calculated based on the driver’s engaged time, which the proposition defines as the time between accepting a fare and the completion of the fare, so waiting time will not be part of the health care subsidy calculations. The law also includes provisions regarding minimum compensation and driver tip processing meant to provide drivers with rights they did not previously have.
The passage of Proposition 22 will not end the classification fight over gig workers. AB5 still applies to many other workers in California and other states are looking at adopting classification tests that closely resemble those found in AB5. Uber and Lyft might have a harder time using similar tactics in states like New York and New Jersey which are less friendly to ballot measures. Also, Proposition 22 does not have a retroactive effect. That means that Uber and Lyft will still face ongoing and future litigation over their treatment and classification of workers prior to the passage of Proposition 22. Still, Proposition 22 represents a major win for these companies even at its considerable costs.