California voters pass “Prop 22” in win for employers of gig-economy drivers

While voters are still awaiting firm results on election returns from yesterday’s presidential race, providers of ride-hailing apps and meal-delivery platforms are celebrating a different electoral victory, as California citizens approved a “Proposition 22” ballot measure that allows employers to compensate their gig-economy drivers as independent contractors, not full-time employees.

Opponents of the measure had argued that gig-economy employers such as the ride-hailing giants Uber and Lyft should be required to provide their drivers with benefits and protections including paid sick leave and unemployment insurance. 

That sentiment was recently echoed by the California state legislature, which in 2019 approved Assembly Bill 5 (AB5), drafted to make it harder for employers to qualify employees like truck and cab drivers as independent contractors. At the time, that bill was applauded by union groups like the International Brotherhood of Teamsters, which said it would block companies from dodging the cost of providing benefits like minimum wage guarantees. However, a federal judge in January issued a temporary stay on AB5, to the delight of industry groups like the California Trucking Association, which said the regulation would have raised their operating costs and triggered tighter capacity in the freight sector.

According to public reports, the passage of Prop 22 now marks a defeat for labor unions and could undermine the recent appeals court decision that had sided with California’s state Attorney General Xavier Becerra, who had sued several companies for violating AB5.

The “Prop 22” rule opens a new chapter in the long-running debate, although it is focused on ride hailing apps as opposed to freight carriers. Despite that distinction, there is some overlap between the two sectors, since Uber and Lyft were joined in their support by firms like DoorDash, Postmates, and Instacart, whose drivers often deliver meals and parcels, as well as passengers.

Together, that coalition of app-based employers drafted Prop 22 as a compromise position, allowing employers to avoid reclassifying drivers as employees, but still requiring them to provide certain benefits, according to a statement released today by the Indianapolis-based transportation law firm Scopelitis, Garvin, Light, Hanson & Feary, P.C. For example, Prop 22 guarantees drivers minimum earnings (based off of 120% of the local minimum wage), full payment of tips to drivers, per-mile compensation for the use of the vehicle, a healthcare subsidy based on the average weekly amount of hours of “engaged time” a driver performs, and occupational accident coverage, Scopelitis said.

“The direct impact of Prop 22 is limited to true gig economy operations and does not translate to a larger win for the transportation industry. However, this victory is another indication of the overreach of AB5 and the value that voters place in being able to perform work as independent contractors,” Scopelitis said. “The gig economy companies have faced heavy pressure from the state (both legislatively and in court) to reclassify drivers as employees and in response have mounted the most expensive ballot initiative in the state’s history. This compromise marks the beginning of an alternate worker classification system (sometimes termed ‘dependent contractors') within the United States.”

Following the ballot measure’s passage, San Francisco-based Lyft said the compromise would provide drivers with flexibility, guaranteed minimum earnings, new healthcare benefits, and more insurance coverage. “Millions of people voted for Prop 22 to redefine what independent work looks like for drivers. Now that it has passed, we will be able to give drivers the new benefits they want and keep rideshare available for people around the state,” Lyft said in the statement.

Today, CA voters stood with hundreds of thousands of app-based drivers and passed #YesonProp22 to ensure they could maintain their independence and have access to historic new benefits, like a minimum earnings guarantee and health care. Thank you! https://t.co/pyC3vk17cR

— Yes On Proposition 22 (@VoteYesOn22) November 4, 2020