California Passed Prop 22. What Does This Mean for Emerging Transportation?

In the midst of a tumultuous election week, app-based driving platforms Lyft and Uber are celebrating a victory in California. Voters there passed Prop 22, which classifies app-based drivers as independent contractors for employment and tax purposes. The initiative carves out an exception to Assembly Bill 5 (AB5), which had classified these drivers as employees. The initiative passed by a significant margin, with 58.4% of Californians voting yes and 41.6% voting no as of this writing. Prop 22 will have significant implications for the rights of a growing number of workers who rely on these apps for both part-time and full-time employment, as well as for policy mobilization opportunities for tech companies.

The Path to Prop 22

Over a third of American adults participate in some sort of gig work, including millions who drive for Uber or Lyft, or both. The labor rights implications for the gig economy have been a concern from the outset, and have become increasingly prescient as the popularity of working for these companies has grown. Particularly relevant in the midst of the COVID-19 pandemic, independent contractors typically do not qualify for unemployment insurance, paid time off, or employer-based health benefits.

In the fall of 2019, California’s state legislature took on the gig economy by passing AB5. AB5 codified and expanded a California Supreme Court decision that held that the vast majority of the workforce is comprised of employees, not independent contractors, and that the burden is on the employer to prove that employees are independent contractors by applying a three-part legal test. “Factor 2” of this test provides that independent contractors perform service “outside the usual course” of business for the employer. This is where gig companies struggle to maintain workers’ independent contractor status.

AB5 was immediately controversial, as reflected by the variety of carveouts included both in the Bill and a subsequent amending bill, AB2257, which exempted nearly 100 types of businesses and workers from the law prior to Prop 22. Companies like Lyft, Uber, and DoorDash remained non-exempt, leading to legal battles. Uber and Lyft even threatened to cease operations in California as a result of the enforcement of AB5, as we have recently discussed.

Enter Prop 22. The ballot initiative classifies app-based drivers as independent contractors, not employees or agents, when certain conditions are met that resemble the policies of Uber and Lyft: no set work hours, no required assignments, no restrictions on working for other app-based driving companies, and no restrictions on having other employment. The initiative requires the approval of seven eighths of the California legislature to amend the policies in Prop 22, meaning that this scheme—designed by ride-share companies, for ride-share companies—could, essentially, be permanently entrenched.

Prop 22 also guarantees benefits to certain drivers across ride-sharing platforms: a wage equivalent of 120% of California’s minimum wage and a healthcare subsidy. The health benefit, however, only applies to drivers who work 25 or more hours per week, measured in “engaged time” spent picking up and transporting passengers. Many drivers spend more than one third of their shift waiting for passengers, meaning that, to reap these healthcare benefits, drivers need to work nearly 40 hours per week. The wage benefit also only applies to engaged time. One study estimates that, accounting for waiting time and costs, the minimum wage for app-based drivers under Prop 22 will be closer to $5.64 per hour, well below California’s minimum wage.

Lyft and Uber poured over $200 million into the “Yes on Prop 22” campaign, making it the most expensive ballot initiative in California’s history. The companies have also spurred controversy for using their apps to urge their armies of drivers and riders to support the initiative. While a smattering of unions and labor organizers pushed back against Prop 22, there was no comparable cash flow or targeted mobilization on the other side: opponents raised only $20 million.

What does Prop 22 mean for emerging transportation?

California has always been a trendsetter in the transportation industry. There are more registered vehicles in California than in any other individual state, and two of Uber’s largest markets are in San Francisco and Los Angeles. Unsurprisingly, this victory in California has led to reports that Lyft and Uber are already looking to pass similar laws in other states.

The success of Prop 22 will, at the very least, send a signal to other jurisdictions that passing laws similar to AB5 will lead to a concerted backlash. New Jersey, Massachusetts, New York, and Illinois are among states that have considered legislation that would classify many independent contractors as employees. Even prior to Prop 22, the tumultuous path of AB5 demonstrated the tricky business of using a one-size-fits-all approach to regulating labor and employment in the gig economy, which encompasses a broad swath of fields and income levels. The fact that millions of California voters were mobilized in support of this initiative sends an even stronger signal.

Perhaps an even more fascinating (and jarring) element of the Prop 22 story is the corporatization of California’s ballot initiative process, which allows companies to skirt around legislators, regulators, and courts to implement laws useful to their margins. California’s ballot initiative process is one of the most relaxed in the nation, which various corporations used this election cycle to promote multimillion dollar campaigns directly to voters. It is clear that Uber and Lyft, which have experienced steep drops in revenue throughout 2020, will spare no expense in fighting laws meant to guarantee employment benefits to their drivers. To illustrate, advertisements funded by Lyft framed Prop 22 as a worker’s rights bill, highlighting the benefits that are secured by Prop 22 (without mentioning hour requirements, of course) and claiming that maintaining the status quo of AB5 would end ride share services in California as they exist today (which would only happen if Lyft decided not to pay up to comply with the law).

Even the CEO of Uber has expressed that ride-sharing apps are failing their drivers, advocating for creative policy solutions to give these workers flexible benefits. This is not what Prop 22 does, instead shutting down policymaking and entrenching a path that will allow Uber and Lyft to, essentially, continue operating the way that they always have. It will be interesting to see whether, and how, this model of mobilization will be transferred to other transportation issues.

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