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Explained: What passage of Proposition 22 means for Uber, Lyft, their workers in California

While last week’s vote only affects labour law in California, it is expected to lay out a path for similar initiatives across the country.

By: Explained Desk | New Delhi |
Updated: November 12, 2020 10:54:23 am
An Uber Technologies Inc. logo sits on a smartphone display. (Bloomberg Photo: Chris J. Ratcliffe)

Gig-economy giants in the US such as Uber, Lyft and DoorDash celebrated a major win last week as voters in California green-signaled Proposition 22, a ballot measure that will allow these companies to retain their drivers and other workers as “independent contractors” instead of “employees”.

In California, America’s most populous state, the referendum appeared on the ballot of the 2020 US election on November 3, and was approved with 58 per cent of the vote. For months, the initiative had been pushed by app-based companies in the West Coast state, and was opposed by labour organisations who were seeking greater protections and benefits for gig workers.

While last week’s vote only affects labour law in California, it is expected to lay out a path for similar initiatives across the country.

Contractors or employees

When companies such as Uber and Lyft first started in California in the 2010s, they did not hire drivers as employees, and instead classified them as independent contractors. For drivers, the gig work was supposed to bring greater flexibility than traditional employment.

The industries argued that they were technology companies, and said that they should not be burdened with the legal requirements applicable to transportation companies.

Under California’s labour law, this business model was controversial from the beginning, since the companies did not provide drivers and other workers unemployment insurance, health care, sick leaves or guaranteed pay– the binding responsibilities of an employer.

The gig business model came under attack in 2018, when the California Supreme Court in its landmark ‘Dynamex’ ruling changed the law which decided whether workers were employees or contractors, reducing the threshold for a worker to be categorised as an employee.

As per the verdict, workers were to be treated as employees in every case, except if they were: free from the control and direction of the hirer; performed work outside the usual course of the hirer’s business; and were engaged in their own independent business.

The California legislature saw the Dynamex judgment as a welcome move which could rein in the burgeoning gig industry, and in 2019 enshrined it in a state law called Assembly Bill 5 (AB5), which went into effect in January 2020.

A protest by Uber and Lyft rideshare drivers against California Proposition 22 (Reuters/File)

The battle for Prop 22

The app-based companies saw the AB5 law as a direct threat to their business, and came together to draft a ballot proposal– a legal measure available in several US states by which citizens can suggest propositions to be put to popular referendum in the state, bypassing the legislature.

Named Proposition 22, it asked voters whether gig workers should have flexibility or stability, and was to go on the ballot on November 3– the same day Californians would choose between presidential candidates Donald Trump and Joe Biden. Meanwhile, the companies ignored AB5, and Uber and Lyft threatened to leave the California market.

The gig industries poured money into their ‘Yes on Prop. 22’ campaign, raising over $200 million — the most in California’s history on a proposition campaign — to get voters on their side. The companies launched aggressive in-app messages, and stickers were pasted on Uber vehicles and on bags of online grocery service Instacart.

The companies claimed most of their drivers, a million Californians, would prefer the flexibility of contract work over the stability of employee benefits. They argued that if this proposal did not pass, drivers would be forced to become full-time or leave the platform, and prices would increase.

Those opposed to the proposition, such as labour unions, argued that drivers should get full employee protections, and criticised the companies for trying to write their own labour laws. Then-Democratic nominee Joe Biden endorsed this side.

A sign marks a rendezvous location for Lyft and Uber users at San Diego State University in San Diego, California, US, May 13, 2020. (Reuters Photo: Mike Blake)

What the passing of Proposition 22 means

The popular approval of Proposition 22 on November 3 is seen as a major achievement for app-based companies, as it brings stability to their contract-based business model, especially since many of them, such as Uber and Lyft, are yet to turn a profit.

The place of their victory is also of particular importance. California, which is the largest state economy in the US, makes up over 14 per cent of the country’s $19 trillion GDP. Enthused, the gig industry has already announced that it would seek to replicate the measure in other states. 📣 Express Explained is now on Telegram

Prop 22 also brings some advantages for gig workers. They would be able to work independently, but with new benefits such as minimum pay, vehicle insurance and some health care options.

Critics, however, accuse the ballot measure of undoing the achievements of the labour movement of over a century. With the success of Prop 22, experts worry that traditional businesses in the US would follow the same path as app-based companies to reduce costs – only choosing to hire gig workers and not offer full employment– thus potentially undermining the basic worker protections that a large section of the population currently enjoys.

Prop 22 is also criticised for undermining the democratic process. Because of a provision contained in the ballot measure, the California legislature would now require a seven-eighths majority– an unusually high bar– to make any legal amendments affecting gig workers.

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