This election season, gig economy companies, namely Uber and Lyft, spent over $200 million campaigning in favor of CA Prop 22. This high profile proposition amended 2018’s Assembly Bill (AB) 5, which took effect in January 2020. AB 5 was intended to end worker misclassification by gig employers, and force these companies to grant full-time employment status to their drivers. The subsequent Prop 22 was written in response to AB 5, as the Assembly Bill spurred many of these companies into threatening to pull out of California entirely. Before we dive into Prop 22 and what it means for the future of the gig economy, let’s start with some background information.
AB 5’s ABC rule
The main tenet that AB 5 codified was the ABC rule. This was a set of three conditions that workers would need to meet for employers to legally classify them as contractors. Why is this important? The ability for gig employers to classify the bulk of their workforce as contractors allows them to work around minimum wage and overtime protections, paid sick days, workers’ compensation benefits, and unemployment insurance benefit, effectively saving the companies millions, if not billions in employment benefits. AB 5 also required these employers to pay their fair share of Social Security, Medicare, and unemployment insurance taxes, which would have a net benefit for these contracted employees who don’t receive any of these benefits from their employers. With all this in mind, it makes sense that companies like Uber, Lyft, Instacart, Postmates, and DoorDash (the list goes on) would engage in such extensive campaigns to pass Proposition 22, which would reverse some of these rules. But what is the ABC rule? It states that for workers to be classified as independent contractors, they need to meet three conditions:
A) Workers are free from control and direction by the hiring company;
B) They perform work outside the usual course of business of the hiring entity; and
C) Drivers are independently established in that trade, occupation, or business.
Needless to say, gig workers–rideshare drivers, delivery drivers, and task assistants–would not meet these requirements, and would subsequently be classified as full time employees. This bill was indeed groundbreaking. The Economic Policy Institute reminds us that “A 2000 study commissioned by The U.S. Department of Labor found that between 10% and 30% of audited employers misclassified workers and that up to 95% of workers who claimed they were misclassified as independent contractors were reclassified as employees following review.”
The Prop 22 Switch Up
Californians voted on the extremely high profile and contentious Prop 22, which was arguably the most talked about ballot initiative in the state. Companies spent over $200 million campaigning in favor of it, making it the most expensive campaign in California history. Its notoriety also comes from the fact that these companies threatened to pull out of the state if it failed to pass, and nobody is prepared to give up their rideshare apps. But the real question is, does Prop 22’s 58.7% victory constitute a loss for those rideshare drivers? Well, opinions are split on this matter.
Some drivers were vehemently opposed to Prop 22. Grassroots organizations managed to raise millions of dollars to combat their employers campaigning. Their argument is clear, they work greater than 40 hours a week, making money for their gig employers, and they want healthcare for themselves and their families, paid leave if they fall ill, and unemployment benefits. It is also worth noting that Prop 22 included a condition that, if passed, it would need a 7/8ths majority vote to be altered, or taken back to the ballot, making it effectively irreversible. Locking into place the sweeping classification of contractors, the healthcare stipend requirements, and precluding the possibility of offering some workers full-time status and others contractor status. These arguments are compelling, which easily explains why this was a contentious ballot measure, but it doesn’t explain the large margin of YES votes.
Drivers in favor of Prop 22 also had compelling arguments. NPR’s 1A podcast spoke with folks on both sides. Many drivers in favor of Prop 22 are full time, so they would likely benefit from employment status, but those benefits would not, in their opinion, outweigh the pros of being their own boss, having flexible hours, not needing to meet minimum hour requirements, and not committing portions of their pay to these employment benefits. Many drivers can make over $100,000 a year, wages they would not find in any other career available to them. Additionally, the majority of drivers do see their rideshare gig as just that, a gig. Meaning they are operating in unison with other jobs as teachers, real estate agents, service workers, and many other professions. This added cash on the side that they can earn on their own time is invaluable to them.
Prop 22 Passed: here’s why it’s a good thing
Prop 22 is good for rideshare drivers and delivery folks. The most notable benefits are a minimum earnings guarantee, and healthcare stipends.
- The Minimum Earnings Guarantee: Where current laws don’t promise that workers will be able to balance flexibility with pay stability. Now, drivers always receive 120% of minimum wage plus 30 cents per mile compensation toward expenses. This is in addition to the driver’s potential to earn more without upper limits.
- Healthcare Stipends: This bonus would match the average employer payment toward a Covered California Plan, around $370/month. Drivers working 15 hours per week start to accumulate this stipend, and receive the full amount after 25 hours per week. This is an improvement compared to current federal laws, requiring benefits after 30 hours/week without guarantees for part time workers. Additionally, workers can double or triple their stipends by driving for multiple platforms, which most already do.
The proposition also requires employers to provide occupational accident insurance, automobile accident and liability insurance, and protection against discrimination and sexual harassment.
This argument would also be incomplete without saying that, since Prop 22 passed, Uber and Lyft stock valuation has increased by $20 billion, and that was only in the first week following the election.
The Future of the Gig Economy
It’s no secret that business and labor are changing. The tech boom has ushered in what we now call the Gig Economy. It may seem like just another buzzword, but it indicates that service industries and the options available for non-traditional workers are going through dramatic changes. It is revolutionary and options for non-english speakers, folks with disability classifications, and expatriates are rapidly growing.
Aside from rideshares and personal shoppers, websites like UpWork allow businesses to save on web development, graphic design, content writing, and even administrative functions like finance and data management. Entrepreneurs no longer need to hire in-house specialists for these tasks, and the traditional middle man-the contracting firm-are being circumvented, cutting cost for new businesses. The benefits that small businesses experience and the options available to freelance workers are two sides of the same coin. We predict that Prop 22 is the first of many legislative initiatives that will facilitate the advancement of the gig economy and increase incentives for people to take advantage of the opportunities gig employees have to offer. This in unison with new public healthcare initiatives like Obamacare and 2019’s Medicare for All Act will only serve to grow the gig economy and encourage new entrepreneurial endeavors. Who knows, gig employers may begin partnering with healthcare providers to offer workers discounted rates. But the opportunities don’t stop with healthcare. We might start to see additional benefits guaranteed to gig workers such as discounted equity opportunities. At the end of the day the gig economy is a net benefit for a country with limited offerings in terms of social welfare or employment assistance.
To read more about the difference between independent contractors (ICs) and full time employees (EEs), check out our Worksheet on Employment Status. And don’t forget to subscribe to the Emtrain Blog for more insights into the future of work.