You’ve undoubtedly heard about the brouhaha in California since the state legislature passed Assembly Bill 5, better known as AB5. It’s the legislation that would require Uber, Lyft, DoorDash, Instacart, and many other companies and operations, to make their independent contractors employees.
If you’re not up to speed with all that, you can catch up by reading this blog post we published a few weeks ago.
After the companies refused to comply with AB5, the state sued, and the companies lost. They filed an appeal and continue to operate, at least for now, under the terms of that appeal.
The decision should come through around the time of Election Day on November 3. That’s when citizens in California will decide whether Proposition 22, the companies’ effort to exempt drivers from the terms of AB5, will get an up or down vote.
If you don’t live in California, please understand that this can still affect you. What happens in Cali on Election Day and afterwards will have a reverberating effect—and not the kind that comes wailing out of a California surf guitar. This kind of tumult, and the existential threat to the gig economy, happens to be in California now; but it could be coming to your state before too long.
If Proposition 22 gets enough “yes” votes, the companies will not have to classify their drivers as employees. There are a few different perspectives on this issue, and our goal with this post is to present them to you, examine what’s at stake, and discuss what might happen if it does or doesn’t pass. Here’s what we’ll cover:
- What is Proposition 22?
- What companies are doing to back Proposition 22
- Impact on drivers
- Impact on companies
- Impact on customers
- If Proposition 22 gets voted down …
What is Proposition 22?
Proposition 22, officially the App-Based Drivers as Contractors and Labor Policies Initiative, is a measure developed by the companies (primarily Uber and Lyft), that’s intended to exempt rideshare and delivery drivers from AB5.
Because Proposition 22 would classify app-based drivers as independent contractors and not employees, California employment-related labor laws would not cover them. If the legislation passes, it would lead to the enactment of certain labor and wage policies specific to app-based drivers and companies, including:
- A payment schedule that’s based on the difference between a worker’s net earnings (excluding tips) and a net earnings floor (120 percent of minimum wage applied to a driver’s engaged time, meaning the time between accepting a service request and completing it, plus 30 cents), adjusted for inflation after 2021, per engaged mile;
- Limiting app-based drivers from working more than 12 hours during a 24-hour period, unless the driver has been logged off for an uninterrupted six hours;
- For drivers who average at least 25 hours per week of engaged time during a calendar quarter, companies would be required to provide healthcare subsidies equal to 82 percent of the average Covered California (CC) monthly premium;
- For drivers who average between 15 and 25 hours per week of engaged time during a calendar quarter, companies would be required to provide healthcare subsidies equal to 41 percent of the average CC monthly premium;
Also under Prop 22, companies would be required to provide or make available:
- Occupational accident insurance to cover at least $1 million in medical expenses and lost income resulting from injuries suffered while a driver was online, meaning using the app and able to receive service requests but not engaged in personal activities;
- Occupational accident insurance to provide disability payments of 66 percent of a driver’s average weekly earnings during the previous four weeks before the injuries were suffered (while the driver was online but not engaged in personal activities) for upwards of 104 weeks, or approximately two years;
- Accidental death insurance for the benefit of a driver’s spouse, children, or other dependents when the driver dies while using the app.
In addition, says the political encyclopedia, Ballotpedia, Proposition 22 would require the companies to “develop anti-discrimination and sexual harassment policies; develop training programs for drivers related to driving, traffic, accident avoidance, and recognizing and reporting sexual assault and misconduct; have zero-tolerance policies for driving under the influence of drugs or alcohol; and require criminal background checks for drivers. The ballot initiative would criminalize false impersonation of an app-based driver as a misdemeanor.”
What companies are doing to back Proposition 22
As you might imagine, the companies are 100 percent behind this ballot proposition because, after all, it was their idea. They view it as a compromise between hiring independent contractors with absolutely no benefits, and employees with benefits but far less flexibility.
In the measure (as previously explained) companies state they will pay drivers above minimum wage, plus an additional 30 cents per mile. They’ll also make provisions for health insurance for drivers who work more than 15 hours per week, and will pay for injuries suffered on the job.
Company efforts to persuade people to vote in favor of Prop 22 include emails to customers urging a “yes” vote, as well as prolific television and online ads. At the heart of the companies’ appeal to customers is their claim that they may not be able to operate in California anymore if they are forced to classify drivers as employees.
The most highly circulated ad for “Yes on 22” states that if and when drivers are classified as employees, many would lose their jobs. See the ad for yourself below.
The ad, funded by part of the $100 million raised by Uber, Lyft, DoorDash, and Instacart, discusses the rideshare and delivery business as a source of income for many people who really need the income they get from their driving gigs.
In the ad, the companies allude to the complications brought on by COVID-19. The video montage of drivers’ cars with masks dangling from the rearview mirror are voiced over with a somber reminder of how high the unemployment rate already is, and how much worse it would be without Proposition 22.
And there’s more persuasive rhetoric where that came from. With just two months until election day, the companies will pull out all the stops. They don’t hesitate to use scare tactics to make customers imagine what their lives would be like if Uber, Lyft, DoorDash, Instacart, and other rideshare and delivery companies would have to stop operating in California.
The recent threat by Uber and Lyft to do exactly that, when they were denied a stay on a decision unfavorable to their case, resulted in a higher court taking their appeal. The companies have a lot of money to lose if they are forced to classify drivers as employees; it would mean a total overhaul of their entire business models. If Proposition 22 gets voted down, they might believe they have no choice but to end their California operations.
Impact on drivers
Many drivers and groups have been fighting to be classified as employees for a long time. This blog post from several months ago tells you about a few of them. They believe drivers should have a guaranteed minimum wage and benefits, which would certainly be good for drivers.
Yet not all drivers are interested in being classified as employees.
Let’s take a look at some of the benefits for drivers if Proposition 22 passes:
- Companies providing additional benefits (some insurance, some additional compensation);
- Freedom to choose your work hours;
- Background checks remaining the way they are now;
- Freedom to work elsewhere and for other apps;
- Fewer limits on the number of drivers allowed to work;
- Flexibility to tend to family and social responsibilities.
If Proposition 22 doesn’t pass, and drivers must be classified as employees, they will receive a set minimum wage and benefits. But these criteria will also take effect:
- More restrictions on hours;
- Limits on the number of drivers permitted to work;
- Stricter background checks;
- Fixed work hours;
- Inability to work for a competing company;
- Possibility the companies will no longer be in operation.
Impact on Companies
It would not be an exaggeration to say that if Proposition 22 passes, the companies will most likely be ecstatic. In truth, they would probably be even happier if they didn’t have to deal with this issue at all, and simply continue operating as they have thus far. They might have also avoided paying $100 million to get Proposition 22 on the ballot and hiring companies to promote their case.
Here are some specific aspects of the bill that they will likely consider beneficial:
- Exemption from many of AB5’s restrictions;
- Ability to continue operating without the immense financial burdens of AB5;
- Capacity to attract drivers to their platform with low compensation;
- Flexibility of having as many drivers as needed;
- Market-driven pricing can largely stay in place.
If Proposition 22 doesn’t pass, the companies will be responsible for paying a very large bill. The Center for Labor Research and Education at UC Berkeley estimates that, if Uber and Lyft had paid into the state unemployment insurance fund from 2014 to 2019, they would have owed the state $413 million. That gives us some idea, should the companies be mandated to do so, of how much they would have to pay into the unemployment insurance fund.
Also if Prop 22 doesn’t pass, the companies will need to make huge investments to restructure the way they pay drivers and run their businesses. All this will come on top of the fact that so far, they have yet to make a profit.
Some specific problems they might face if Proposition 22 doesn’t pass include:
- Large payments for minimum wages and insurance;
- Software development costs to alter the apps;
- Expense of human resources compliance, including background checks;
- Possible liability issues;
- Disruption while companies make changes in operations;
- Risk of being fined by the government for noncompliance.
Impact on Customers
Lest anyone wonder why we should care what customers might experience, well, without customers there would be no reason for drivers or the companies to be in business. Here are some ways that customers could be affected if Proposition 22 passes:
- Rideshare and delivery services continue uninterrupted;
- Prices remain almost the same, with some slight increases;
- Continued choice and convenience of multiple companies;
- Satisfaction that companies are making some concessions to drivers.
How will customers be affected if Proposition 22 does not pass?
- Rideshare and delivery services may be disrupted or discontinued;
- Need to find alternate means of transportation and delivery services;
- Prices likely to rise sharply, to help offset company expenses;
- Satisfaction that companies have complied with the law and made and drivers employees;
- Greater confidence in drivers who have been more thoroughly background checked;
- Companies will be liable for driver behavior and error.
If Proposition 22 gets voted down…
Of course, there’s no crystal ball to tell us whether Proposition 22 will pass or not, but there are polls. One of these, conducted on August 9 by the strategic consulting firm Redfield and Wilton, shows that support for the legislation is high. The poll found that 41 percent of voters plan to vote “yes,” and 26 percent plan to vote “no.” Yet there’s also a strong indication that the fate of Prop 22 is still very much unknown: the remaining participants in the poll who said they still don’t know how they’ll vote.
That brings us to what might happen if Proposition 22 gets voted down. It would mean that AB5, which went into effect last January, would still apply to rideshare and delivery companies. It would mean that the drivers and groups pushing to get drivers classified as employees have won the war … and the companies will have lost.
So what about after that? Would the companies follow through on their threat to pull out of California? These companies, in many ways, are California, since they were birthed in Silicon Valley, and every cutting edge that’s emerged from the industry has been tested first in California.
Still, would they really pull out of the state? Financially, it might make sense, and that’s sad for a lot of reasons. Most important, many drivers would no longer be able to earn a living through the gig economy. Also, it would be very hard for customers and the restaurants, stores, bars, and other establishments that depend on rideshare and delivery drivers to fill the huge gap that would be left in the heart of California’s economy, should the gig companies leave.
Then … this would probably not be the last state where companies are forced to make gig drivers into employees. This pattern would be likely to repeat itself in just about every other state, and maybe other countries too.
Yes or no? How would you vote?
Now that you know more about Proposition 22, and have had a chance to look at it from different angles, how would you vote?
As for earnings, what are you making now? What do you need to make? Do you make more if you work for multiple companies, or do you profit more if you stay with just one app?
If you want to find out the answer to all these questions, download Gridwise. It can be invaluable in helping you make decisions like whether you want a fixed minimum wage, or want to keep the freedom of working over multiple platforms. The Gridwise app lets you track your earnings, and it presents you with pictorial evidence of your performance. You can also track your mileage for tax deduction purposes.
Plus, you’ll get airport and event information, and all kinds of cool stuff on our Perks Tab. Get discounts and deals for drivers, easy access to our informative blog, and links to the latest from the Gridwise YouTube channel.
And be sure to join us on Facebook so you can connect with the rest of the community, and get in on our great gas card giveaways.
No matter how Proposition 22 and the future of the gig economy works out, count on Gridwise to be here with you to always make your rideshare and delivery driving experience as convenient and profitable as possible.