California Proposition 22: App-Based Drivers as Contractors and Labor Policies Initiative
Proposition 22 would overturn Assembly Bill 5’s (2018) classification of app-based transportation and delivery drivers as employees and allow them to be classified as independent contractors. The initiative would establish different criteria for determining whether app-based transportation (rideshare) and delivery drivers are “employees” or “independent contractors.” Independent contractors are not entitled to certain state-law protections afforded employees—including minimum wage, overtime, unemployment insurance, and workers’ compensation. Employees may not be allowed certain flexibilities in working hours, shifts, and compensation. Companies with independent-contractor drivers would be required to provide specified alternative benefits, including minimum compensation and health care subsidies based on engaged driving time, vehicle insurance, safety training, and sexual harassment policies.
The Legislative Analyst’s Office estimates a small increase in state personal income tax revenue due to drivers receiving higher compensation.
Proponents’ Argument For
Supporters argue that California’s Assembly Bill 5 of 2018 has threatened to take away the flexible work opportunities of hundreds of thousands of Californians, potentially forcing them into set shifts and mandatory hours, taking away their ability to make their own decisions about the jobs they take and the hours they work. They say that protecting the ability of Californians to work as independent contractors throughout the state using app-based rideshare and delivery platforms is necessary so people can continue to choose which jobs they take, to work as often or as little as they like, and to work with multiple platforms or companies—all the while preserving access to app-based rideshare and delivery services that are beneficial to consumers, small businesses, and the California economy. Proposition 22 also preserves options for individuals who want to do app-based driving on an occasional basis to supplement their other income when it is convenient for them to do so.
Opponents’ Argument Against
Opponents say that instead of protecting drivers, the legal loophole created by Proposition 22 would allow gig companies to make billions of dollars while abandoning their responsibility to pay for basic worker protections like unemployment insurance, Social Security, Medicare, and the life-saving protective equipment drivers, riders, and their families depend on to stay safe and healthy during the pandemic.
Assembly Bill 5 (2018) changed the criteria for service providers in many industries to be categorized as independent contractors—causing many to be reclassified as employees. Proposition 22 proposes to roll back the impact of AB 5 for drivers working for Uber, Lyft, DoorDash, Grubhub, Instacart, Postmates, and similar companies.
App-based rideshare and delivery services—industries largely created by California-based venture capitalists and entrepreneurs—have provided considerable benefits for consumers while generating flexible work opportunities for thousands in the state.
While unions and other groups want more workers to be classified as employees so that they can receive benefits that come with full-time jobs, they’re also hoping to recruit dues-paying members who can increase their membership and clout. But many drivers prefer the flexibility that independent contractor status provides. This includes the ability to accept riders from multiple companies and to set their own schedules.
The ridesharing and delivery firms are spending liberally to promote Proposition 22 because reclassification threatens to raise costs and lower revenues for these companies. Measure opponents see these efforts as an attempt to preserve industry profits gleaned off the backs of drivers. Driver advocacy group We Drive Progress describes itself as follows: “We’re behind the wheel of every Uber and Lyft ride. We’re responsible for the billions in profit these companies and their investors are pocketing every year.” Their website quotes one driver as follows: “We deserve things like paid leave, fair pay for working long hours, and our share of the large profits we earn for Uber.”
But Uber isn’t profitable. Before its Initial Public Offering, the company burned through investor capital, losing $2.8 billion in 2016 and another $4.5 billion in 2017. The company did report a $1 billion profit in 2018, but that came from selling its businesses in Southeast Asia and Russia; Uber had an operating loss of $4 billion that year. In 2019, Uber’s red ink grew to $8.5 billion. Lyft is also a chronic money-loser.
As for investors profiting, while it is true that early private market investors made a killing on rideshare startups, the companies are not doing so well on the public markets. As of August 2020, both Lyft and Uber shares were trading well below their respective IPO prices.
Often lost in the debate between rideshare companies and drivers is the customer perspective. Before Uber and Lyft transformed the industry, riders were dependent on taxi cabs, which meant paying more while putting up with a host of dangers and inconveniences. A 2013 report in The Bay Citizen summarized the state of affairs:
“San Francisco taxi drivers routinely flout the law by refusing rides, declining to take credit cards, charging unauthorized fees, speeding, smoking, and talking and texting on cellphones while driving … Taxis infested with bed bugs, drivers falling asleep at the wheel, rude behavior and difficulty getting a cab also were among the [passenger] complaints.”
With the COVID-19 pandemic and the recession exacerbating unemployment, it is more important than ever to maximize opportunities for rideshare and delivery drivers.