There have been many discussions on the implications of California’s AB5 and proposition 22. But what exactly is prop 22, and what are its ramifications?
California Assembly Bill 5 (AB-5) is a California law that went into effect January 1, 2020 that “…requires companies that hire independent contractors to reclassify them as employees, with a few exceptions”. Gig workers in companies like Uber, Lyft, and DoorDash and Instacart were not included in the exemptions list at the beginning.
The new law forced these companies to provide their gig workers with the same benefits traditional employees are entitled to, including workers’ compensation, unemployment insurance, family leave, and more. The companies claimed that reclassifying their workers as employees would put them out of business and threaten to shut off their operation in California.
Their response to the California court that ordered them to comply with the law, was to push and promote proposition 22, which exempted app-based drivers and couriers from AB5.
Lyft, Uber, DoorDash, Instacart, and Postmates invested almost $200M into “Yes on Prop 22“, making it the most expensive ballot measure in California’s history. Their strategy was to explain to the public their cost of living will be significantly impacted if prop 22 will not pass, as all driving and food delivery apps will increase their pricing in California.
This article is part of our guide on Assembly Bill 5 (AB5).
AB5 exemptions and AB2257
When AB5 was first publish it included a list of around 100 professions that were exempted from AB5. On September 4, 2020, AB2257 was passed which updated the AB5 exceptions, stating they’d be exempt from the mandates of the AB5 ruling, including (but not limited to):
- Insurance agents
- Certain health care professionals
- Securities broker-dealers
- Investment advisers
- Certain types of salespeople
- Real estate agents
- Commercial fishermen
- Barbers and cosmetologists
- Freelance writers and designers
While this approach is meant to level the playing field on a vocation-by-vocation basis, for gig-workers in California, it presents the potential for hurdles down the road.
AB2257 set a precedent in terms of expanding the AB5 exemption list. Approving it enables the huge companies to go big on promoting prop 22.
Below is a bird’s-eye view of what Prop 22 means for gig workers, consumers, and gig worker-supported organizations.
Yea or nay for prop 22?
|YES on Prop 22||NO on Prop 22|
|Impacts on business operations|
|Benefits received by workers|
|Worker classification||Contract worker||Traditional employee|
|Pros for gig workers|
|Pros for consumers|
|Pros for companies like Uber||Very few, if any — which is why these organizations are spending nearly $200 million to get Prop 22 on California ballots.|
What does Prop 22 cover?
In November 2020, California voters approved Prop 22, undoing lawmakers’ efforts to reclassify gig workers as company employees under Assembly Bill 5.
It was passed with a 58% majority. It allows companies to classify app-based drivers and food delivery as independent contractors although they did not meet the AB5 ABC classification test, but only the less-strict Borello classification test. However, it did 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
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.