Uber and Lyft got their way in California, with voters supporting their Proposition 22 ballot measure.
Prop 22 will exempt these and other “gig economy” companies from a law that would have forced them to treat drivers and delivery workers as employees. Instead, they will be able to continue treating them as independent contractors, saving the companies money on employee expenses such as paid sick days, unemployment insurance and health care.
Shares in both Uber and Lyft rose more than 10% on Wednesday following the projected win.
Now, the companies and labor advocates will turn their attention to other states weighing similar labor law changes.
Uber CEO Dara Khosrowshahi has even appealed to President Donald Trump and U.S. lawmakers to consider “a third way” of classifying drivers, similar to what Prop 22 provides but at the federal level. The proposition allows the companies to offer drivers partial benefits, such as a minimum base pay that’s higher than the federal minimum wage, and health-care subsidies for some drivers depending on the average amount of hours they spend giving rides or making deliveries each week.
Both companies, along with delivery companies DoorDash, Instacart and Postmates, which Uber plans to acquire, poured millions into the $203 million support effort, breaking records for a single campaign initiative in the state. The opposition raised just about $20 million despite pulling support from Democratic presidential nominee Joe Biden.
Critics point to the ride-hailing and food delivery companies’ expenditures as a sign of excessive corporate influence. The companies claim they are backing a measure that many of their own drivers and delivery workers support.
Now that voters have weighed in, attention will largely shift to policymakers considering labor reforms or with their own AB5-style laws on the books, like New York and Massachusetts.
What Proposition 22 does and why it won
Proposition 22 is rebuke of a recent California state labor law called AB5, which codified a three-part test for whether workers should be considered contractors or employees.
Lawmakers who supported AB5 hoped it would make gig economy companies like Uber and Lyft classify drivers as employees, which would require them to pay for things like benefits and unemployment insurance.
Uber and Lyft made changes before the law went into place to give drivers more flexibility, which they claimed would make them compliant. But California’s attorney general sued the companies, alleging they did not do enough to pass the new labor test. A trial judge granted a preliminary injunction that would have required companies to adhere to the employee classification, although it was not slated to take effect until after the election. He also called Uber’s logic for counting drivers’ work as outside the ordinary course of their business “a classic example of circular reasoning.”
That lawsuit is unlikely to matter now that Prop 22 has passed, allowing the companies to continue operating as they have.
Seth Berenzweig, founder and managing partner of the business law firm Berenzweig Leonard outside of Washington, said passage of Prop 22 is a huge win for businesses, especially those with significant operations in California.
“Candidly, some drivers will be disappointed with this. But on balance, it’s a reasonable modern compromise. And it will probably also serve as a new blueprint for other states,” Berenzweig said.
Berenzweig believes that one reason Prop 22 garnered widespread support was because “people like to be independent. They don’t like the government shoving an answer down their throat.” More important, he said, the companies were savvy in defining a middle ground.
The new base hourly compensation under Prop 22 is around $16.80, which is higher than the minimum pay under fair labor standards, provisions and regulations. That pay rate helped with the companies’ pitch.
Offering some payment to help maintain state insurance contributions was also smart, Berenzweig said. “It helped provide the appearance of some kind of middle ground rather than doing what the state did. The state just made an extreme decision and put everybody and everything in one lane,” he said.
Critics of the measure say it’s not that straightforward. Drivers for Uber and Lyft, for example, spend plenty of time waiting in their cars for another rider to pop up on their phone for a pickup or driving to a nearby stop without pay. Drivers like Nicole Moore, an activist with Rideshare Drivers United, say that waiting time should be considered work as well. Since benefits would be based on how many hours the companies considered them to have worked, they could end up short-changed there, too, according to Moore.
“When we’re able to get our message out, our message is effective,” Moore said.
Independent surveys seem to support the companies’ claims that drivers want to be independent. But Moore and labor law experts like University of Buffalo professor Erin Hatton say drivers don’t always get the full picture from gig companies.
“They’re selling them this dream of being your own boss, working whenever you want to, being in control of your work hours,” Hatton said. “But they’re doing all of these things to undercut the financial security that they might gain from this work.”
Uber did not provide comment for this article or on Proposition 22. A Lyft spokesperson pointed to a statement on the proposition highlighting the long fight to get the measure on the ballot and benefits it would provide, like an earnings guarantee.
Where the fight goes from here
Companies that supported Prop 22 want similar measures elsewhere.
Lyft Chief Policy Officer Anthony Foxx said in a statement the company “stands ready to work with all interested parties, including drivers, labor unions and policymakers, to build a stronger safety net for gig workers in the U.S.”
“Now, we’re looking ahead and across the country, ready to champion new benefits structures that are portable, proportional, and flexible,” DoorDash CEO Tony Xu said in a statement.
They will likely face similar opposition in New York and Massachusetts as they did in California. But Hatton said she believes that the ballot measure could be “precedent-setting.”
“California is a huge and influential state,” she said. “These tech companies, many of them originated there, it’s kind of seen as the vanguard of this whole sector. And they’re literally rewriting employment law, and not just for themselves, but I think that lots of other companies will see this and try to follow suit.”
Chris Gerace, who drives for Uber and Lyft in upstate New York and writes for The Rideshare Guy blog, has already taken note of changes the companies have made to accommodate California’s AB5. While he said he supports allowing drivers to be independent workers, he wants to see some of the more flexible features Uber gave to California drivers expanded across the country.
For example, he says that allowing drivers to set their own rates could make up for the fact that drivers are not paid for the time they spend waiting or traveling in between rides.
“I don’t want AB5. I don’t want an employee model,” Gerace said. But he also hopes that drivers, not just companies, will be involved in creating legislation in his home state.
“These companies themselves shouldn’t be writing that law or that proposition themselves,” Gerace said.
As for California, Moore said she and other activists are not ready to stop fighting and are willing to pursue action through the courts and policymakers.
While legal options in California are narrowing, Hatton said drivers may still be able to try to reclaim backpay from the companies by claiming they’re owed for wages they were entitled to while AB5 was fully in effect.
Moore isn’t sure if she’ll go back to driving for Lyft or other apps. She stopped taking riders in March as a health precaution during the pandemic. But even at that point, she said, she already felt that her wages were “getting close to not worth it.”
*By Lauren Feiner and Lora Kolodny via CNBC*