Prop 22: California Sets Referendum On The Gig Economy

In California, a state ballot vote tomorrow (Nov. 3) will likely have seismic reverberations for gig economy companies and the millions of individuals and families who rely on them as economy lifelines in the midst of a pandemic.

Proposition 22 (Prop 22) is a measure that would exclude app companies from a new law in the state that would make them classify workers — the drivers behind the ride-hailing and delivery activities on which Uber, DoorDash and others rely — as employees rather than contractors.

Conversely, if the proposition does not pass, Uber and Lyft — and, by extension, other gig economy companies — will have to grapple with the impact of the California Court of Appeal’s decision, as noted in this space, that upheld an earlier ruling that both rideshare firms must re-classify their driver as state employees.  Known as AB5, the shift was signed into law in September by California Gov. Gavin Newsom, and took effect in January of this year.

In that event, they’d have to guarantee minimum wages, paid sick days and other benefits.

Thus far, campaign spending by the firms backing the measure has crossed the $200 million mark, according to Politico, indicating just how much is riding on tomorrow’s vote.

The platform companies Uber and Lyft are backing Proposition 22, which would create a fund that would pay benefits including health care and guaranteed minimum earnings.  In broad strokes, the funding would give drivers occupational accident insurance and can be allocated in stipends that can cover other, private health insurance depending on how many hours a week they work.

There would also be “guaranteed minimum earnings” that would be equal to 120 percent of the state’s minimum wage. The minimums apply to what is known as “engaged time” on the app, which applies to when passengers are actually in Uber and Lyft cars.  A study by the coalition Yes on Proposition 22 has estimated that workers could make between $25 to $27 an hour, where the state’s minimum wage beginning next year will be $14.

Critics of the Prop 22, as it is informally known, charge that the companies are skirting measures that would actually benefit workers.

In a statement, Gig Workers Rising said that, “This proposition absolves the companies of any responsibility to their workers and writes into California state law a minimum wage as low as $5.64/hour.”

What Lies Ahead  

Late last month, in the wake of the appellate court decision, Uber said that “today’s ruling means that if the voters don’t say yes on Proposition 22, rideshare drivers will be prevented from continuing to work as independent contractors, putting hundreds of thousands of Californians out of work and likely shutting down ridesharing throughout much of the state.”  In other commentary on what might happen if Prop 22 is not ratified, Uber CEO Dara Khosrowshahi said in late October. “We’re in the transportation business, so we’re going to do our best to operate in California. Where we can operate is a question mark, and the size and scale of the business will be substantially reduced.”

Thus far the only uncertainty seems to be fixed costs — and a possible curtailing of some of the very activities that, in California (and beyond — more on that in a moment) provide a lifeline to hundreds of thousands of gig workers.

That comes as the pandemic is having a sizable impact on the gig economy itself.  As estimated by PYMNTS, 40 percent of gig workers have lost at least $10,000 of income since the start of the pandemic. Translate that across the 53 million individuals in the U.S. who are gig workers, and the hurt is widespread.

Uber and Lyft have already said they might suspend operations in the state.

That option comes as Lyft and Uber might have to shoulder as much as $400 million in increased costs tied to the reclassification of workers — and that, per Khosrowshahi’s own estimate, the company may have to raise its prices by about 25 percent to as much as 100 percent.

Drivers may have to work fixed shifts (which of course gives these firms, ostensibly, a better sense of cost structure).  But if drivers work fixed shifts, some flexibility is lost — among the biggest selling points in the gig economy.  Taking away this option would take away some of the competitive advantages enjoyed by the gig economy firms themselves — and the ability for an Uber ride-hailing driver to pivot toward, say, Uber Eats.

And the ripple effects would go well beyond the confines of California’s state lines, though the state represents a sizable chunk of activity for Lyft, at 16 percent of the firm’s business and a reported nine percent for Uber.  Other states such as New York, Washington and Oregon are considering legislation that mirror the proposition on California’s ballot tomorrow.

Beyond the headlines focused on the presidential contest, and who holds the U.S. Senate when the polls close and the votes are (ultimately) counted … 53 million gig economy workers may find their workaday landscapes altered in large and small ways.