In November 2020, California voters approved Prop 22, undoing lawmakers’ efforts to reclassify gig workers as company employees under Assembly Bill 5.
The new legislation, powered by the most expensive ballot measure campaign in state history, is a victory for companies like Uber and Lyft, which depend on gig workers. Meanwhile, opponents call the measure a corporate power grab that locks in substandard pay and denies workers basic benefits and protections.
While many gig workers themselves voted for the measure, Prop 22 2020 is yet another broad-strokes approach to regulating the gig economy, which could create troubling effects for both workers and companies down the road.
This conversation isn’t black and white, and it’s far from over. So, what can we expect from California’s new measure, and what comes next?
This article is part of our guide on Assembly Bill 5 (AB5).
Prop 22 2020 recap: The who, what, and why
Prop 22 is a ballot initiative that Uber, Lyft, and DoorDash authored in response to AB5, which was signed into law by California Governor Gavin Newsom and enacted in January 2020.
AB5, also known as the “gig worker bill,” requires companies to classify their workers based on the strict ABC classification test, which forces them to redefine many freelancers as employees and provide them the same protections and benefits as other staff. These include workers’ compensation, unemployment benefits, paid sick and family leave, health insurance, and the right to unionize.
Opponents of the law, including Prop 22’s authors, argue that maintaining gig workers’ status as independent contractors is both central to their business model and necessary for keeping work schedules flexible for drivers. It requested to add app workers to AB5 exemption list.
Uber and Lyft claimed that the costs of reclassifying drivers as employees would lead to ride price hikes of 25% to 110%, which would be shouldered by consumers and cause the number of rides to drop by more than half. The companies calculated that a steep decline in rides would force them to eliminate 79% of drivers.
What does Prop 22 2020 cover?
The prevailing Prop 22 2020 was backed by a campaign worth more than $218 million and passed with a 58% majority. It allows companies to classify rideshare and delivery drivers as independent contractors, but ensures they receive certain benefits, including:
- A guaranteed minimum hourly wage of at least 120% of the state or local minimum wage, plus 30 cents per mile driven to cover expenses like cell phone bills and mileage
- Health insurance subsidies equal to 41% of the average California Covered premium each month for workers who log a weekly average of 15 to 25 hours of engaged driving time
- Medical and disability coverage for illness or injuries on the job for at least $1 million
- Anti-discrimination and sexual harrassment policies and training programs for drivers related to driving, accident avoidance, and recognizing and reporting secual assault and misconduct
- Required criminal background checks for drivers
According to state ballot analysis, the fiscal impact of Prop 22 2020 would be a minor increase in state income taxes paid by rideshare and delivery company drivers and investors.
To opponents, Prop 22 falls short
While the provisions under Prop 22 2020 lend drivers new protections, opponents of the measure say it offers just crumbs of the wages and benefits afforded to regular employees while forcing them to bear the risk of operating these companies.
Here are the four main issues with the ballot measure, according to opponents:
1. Wages will be lower than advertised
Under Prop 22, the minimum wage protection and expense reimbursement applies only to “engaged” time, or when drivers are transporting passengers or making deliveries, and not the time spent driving around waiting for requests.
For most drivers, “unengaged” time accounts for more than one-third of the total time they spend on the road. During this time, drivers still rack up expenses in gas and mileage that exceed the 30 cents per mile they receive to cover expenses.
Although Prop 22 2020 promises to pay 120% of California’s minimum wage, a study from Berkeley found loopholes in the wage stipulation could legally allow drivers to make as little as $5.64 per hour.
2. Inadequate healthcare coverage
Healthcare subsidies are also calculated based on engaged time. Drivers that average between 15 and 25 engaged hours per week would receive a subsidy of 41% of the average Covered California Bronze plan, while those that work more than 25 engaged hours would receive a stipend of 82% of that plan. However, the vast majority of drivers won’t qualify for this benefit.
The same Berkeley study cited above found that a driver who logs 30 hours a week would average a subsidy of about $1.22 per hour, or $36 per week.
3. Vulnerable worker rights
Under Prop 22 2020, gig workers are barred from unionizing, making it difficult to leverage collective power and renegotiate for greater benefits down the line.
4. Dangerous precedent for corporations
Labor rights groups lamented the victory of Prop 22, saying it “is a loss for our democracy that could open the door to other attempts by corporations to write their own laws. When corporations spend hundreds of millions of dollars to write their own labor laws even after our elected officials and public institutions have, numerous times, rejected them, that is a loss for our system of government and working people.”
Broad-strokes solutions won’t solve the problem
At a high level, it’s clear that neither AB5 nor Prop 22 2020 offer a perfect route to regulating the rising gig economy. Although employee status alone is not enough to guarantee good job quality for drivers, Prop 22 is yet another broad-strokes attempt to manage a large and complex population of workers.
In 2019, 57 million Americans or 35% of the US workforce was engaged in freelance work. This number was expected to exceed 64.6 million in 2020 and hit 90.1 million by 2028. Currently, freelancers contribute $1 trillion to the US economy, or 4.8% of the country’s total GDP.
Greater regulation of the gig economy, as well as wage and benefits protections for workers is paramount to ensuring viability for both corporations and workers. But without attending to the nuances of freelance work — including vast variances in pay for “skilled” and “unskilled” labor — it will be impossible to develop an effective code of law.
Expect further changes with President-elect Joe Biden
Incoming President Joe Biden and VP Kamala Harris have already indicated plans to introduce greater regulation of the freelance sector on a federal level. Here’s what we can expect:
- According to his campaign site, Biden promises to “aggressively pursue employers who violate labor laws, participate in wage theft, or cheat on their taxes by intentionally misclassifying employees as independent contractors.” In effect, he will create laws that make worker misclassification a serious violation under all federal labor, employment, and tax laws with additional penalties.
- Biden wants to raise the federal minimum wage to $15 per hour.
- Kamala Harris co-sponsored the Protecting the Right to Organize Act (the PRO Act) in the Senate, which would expand California’s AB5 to the whole country. Biden has said he “strongly supports” the bill.
- Even if the Democrats don’t flip the Senate and fail to enact new legislation, Biden could have ample power in changing the way the existing Fair Labor Standards Act is currently interpreted, including expanding overtime pay and minimum hourly wage to gig workers.
It’s safe to say that the companies that depend on gig workers to operate will not embrace new federal laws that require them to pay for more employee benefits or offer minimum wage. What remains to be seen is just how much change will come to pass, and how they will unfold for workers and corporations.