Contents:

18 min read

    18 min read

    If you’ve been paying attention to what’s going on in California, between AB5 and Uber and Lyft threatening to leave, you may have heard a little about a proposition called Proposition 22. What is Prop 22, how is it different from AB5, and what would happen if it becomes law in California? What are the implications for drivers in other states? Senior RSG contributor Paula Gibbins answers these questions and more below.

    Proposition 22, also known as the App-Based Drivers as Contractors and Labor Policies Initiative, is on the ballot in California this year. It will be voted on by California voters on November 3, 2020. I’ll cover below what it is and what a yes vs. no vote could mean for California drivers.

    GetUpside Gas App

    Quick summary:

    • Proposition 22 would make app-based drivers (like Uber and Lyft drivers) independent contractors and not employees
    • Prop 22 would override AB5 but only for app-based drivers like Uber, Lyft, and app-based food delivery services
    • Uber, Lyft and DoorDash have heavily financed the ‘yes on Prop 22’ side

    What is Proposition 22?

    Proposition 22 is a ballot measure made in response to the implementation of AB5, which outlined requirements for calling workers employees versus independent contractors.  Take a look at the history of AB5 below:

    AB5 doesn’t specifically call out rideshare and gig economy companies, but it does make it extremely difficult for those companies to argue their drivers and delivery people are independent contractors. Due to that, Uber, Lyft, Instacart, Postmates and DoorDash teamed together to fund Prop 22.

    According to an article on CNET, “As of Aug. 28, the five gig economy companies had contributed more than $111 million to Proposition 22, according to California’s Fair Political Practices Commission, with Uber, Lyft and DoorDash the biggest backers.”

    Prop 22 is aiming to call out those rideshare/gig companies and create a separate law that defines that they can call their workers independent contractors while providing some of the benefits of an employee.

    If Prop 22 does not get voted in this November, Uber, Lyft and the others will be required to classify their drivers as employees under the law of AB5 according to a recent judge ruling.

    Greg Ferenstein, a writer, researcher and educator, posted a handy voter guide about Prop 22 from the worker’s perspective. In a nutshell, he describes arguments both for and against Prop 22:

    For:

    • Uber driver surveys show that majority of gig workers want to remain independent contractors
    • Forcing employee status will eliminate jobs and flexibility
    • The proposition adds standards wage and benefit for independent contractors of drivers and couriers (although it’s important to note that the wage guarantees are NOT the same as a minimum wage since they only count engaged time)

    Against:

    • Gig workers will earn more as employees
    • Gig workers will have better benefits as employees
    • The proposition language makes it difficult for the state legislature to later amend the law

    Wondering how AB5 and Proposition 22 differ from each other? This comparison from Morgan Stanley elucidates the differences:

    Why Does This Matter to Drivers Outside of California?

    Other cities and states are considering similar legislation, which means laws or propositions like this could be coming to a city or state near you. Here are a few examples (there are more though):

    • Massachusetts – In July 2020, Massachusetts filed a lawsuit against Uber and Lyft on the grounds of misclassification of drivers.
    • New Jersey – In November 2019, New Jersey sued Uber for $659 million in unemployment and disability insurance taxes for misclassifying drivers as independent contractors. . In January 2020, New Jersey enacted five worker classification bills into law, increasing liability for companies misclassifying independent contractors. The state’s Department of Labor fined Uber $640 million in taxes and penalties as a result of alleged worker misclassification, although the company is challenging the decision.
    • Texas – In June 2017, 19 drivers sued Uber on the grounds of being misclassified as independent contractors. We were unable to find an update on the status of this.
    • New York – Governor Cuomo has created a Digital Marketplace Worker Classification Task Force to make recommendations for new gig labor laws
    • Illinois – State Representative Guzzardi has announced his intent to introduce legislation similar to California’s AB5.

    Many other local city councils and states are considering legislation. According to a report by Morgan Stanley in 2020, they believe the fate of California could set a precedent for other states. Take a look at the states considering or addressing worker classification below:

    Basically, Morgan Stanley came to the conclusion that whatever happens regarding the outcome of Proposition 22 or AB5, it will create a blueprint for other states to follow.

    It’s clear that the determination of the current issues in California could potentially open the doors for other states to follow suit.

    Companies Behind the Prop 22 Ballot Initiative

    Aside from Uber, Lyft, DoorDash, Instacart and Postmates, there are several organizations that support Prop 22.

    Among those include the California-Hawaii State Conference NAACP, California State National Action Network, California Urban Partnership, California Chamber of Commerce, California Small Business Association, and a whole lot more here.

    What Would Change if Proposition 22 Passes?

    If Prop 22 passes this November, the biggest change is that drivers would start receiving benefits they had never received before, but not at the same level as employees.

    Drivers would receive at least an amount equal to 120% of minimum wage for on app time plus 30 cents per mile compensation toward expenses. This would not limit how much money drivers can earn; this would just be the minimum. However, this would only be for active hours while they are driving a passenger, not all on-app time.

    Drivers would also be given health care contributions equal to 100% of the average employer payment toward a Covered California plan. They would start earning this amount at 15 hours a week and reach the full benefit at 25 hours per week, from multiple platforms.

    They would also receive occupational accident insurance (Uber already offers an injury protection plan though which is nearly identical), automobile accident and liability insurance and protection against discrimination and sexual harassment.

    These are most benefits that drivers do not currently receive because they are independent contractors working for the gig companies. These benefits also vary a bit from those they would receive if Prop 22 did not pass and an employee model based on AB5 were to be enforced instead.

    Arguments and Opposition to Prop 22

    Those who oppose Prop 22 state that the proposed measure would continue to exploit workers for profit instead of allowing them the privileges and benefits as mandated by the law under AB5.

    The opposition also states that Prop 22 would only require companies to pay drivers a minimum of $5.64 an hour, well under minimum wage, by only counting “engaged time” when drivers are actively online and working for the app companies.

    The basis for their arguments against Prop 22 is mainly that Uber and Lyft are hiding the truth from voters about who benefits from the ballot measure; that the proposition only helps the companies, not the drivers. Which is very possible given the financial backing is mostly given by the gig app companies themselves. They clearly see something very profitable for themselves in the wording of Prop 22.

    When Harry interviewed Nicole Moore of the drivers-centered group, Rideshare Drivers United, to talk about AB5, she pointed out a few things that are still relevant in our discussion of Prop 22. According to Moore, drivers are frustrated by a variety of issues when it comes to Uber and Lyft, like pay, the ability to contact Uber and Lyft, and protections for drivers. Moore said drivers don’t want to lose flexibility, they just want a ‘good standard of living.’

    This is corroborated by a recent rideshare survey. In May, we sent out a survey to our email list of 80,000 drivers across the country and posted on social media asking for responses to a simple 9-question survey and received over 700 responses.

    The goal of the survey was to determine how Uber and Lyft drivers felt about having an employee vs independent contractor status in the wake of the coronavirus pandemic – have drivers’ attitudes toward becoming employees vs. independent contractors changed?

    It turns out that 71% of drivers surveyed still want to be independent contractors. Prior to COVID-19, 81% of drivers stated they wanted to remain independent contractors. No matter how you look at the info, most drivers would rather be independent contractors than employees. And this probably shouldn’t come as a surprise since most drivers are part-time, so it makes sense that they want to stay independent and value the flexibility more than someone who’s working 40-50 hours a week and can’t really take advantage of that benefit.

    Before and after the pandemic hit, and despite arguments against Prop 22, a vast majority of drivers would prefer to remain independent contractors as opposed to being classified as employees.

    Who Has Financed the Campaigns For/Against the Proposition?

    Total contributions in support of Prop 22 were at $111,157,335.82, as of August 21, 2020 reports, including $30.68 million from Lyft, Inc., $30.33 million from Uber Technologies, Inc., and $30.14 million from DoorDash, Inc. The opposition has raised only $1,981,590.62 in comparison, with the Transport Workers Union of America providing $500,000 of that.

    The top five donors in support of Prop 22 are:

    • Lyft, Inc.
    • Uber Technologies, Inc.
    • DoorDash, Inc.
    • Maplebear Inc., DBA InstaCart
    • Postmates Inc.

    The top five donors in opposition to Prop 22 are:

    • Transport Workers Union of America
    • SEIU California State Council Issues Committee
    • California Federation of Teachers COPE Prop/Ballot Committee
    • Members’ Voice of the State Building and Construction Trades Council of California
    • California State Council of Laborers Issues PAC

    You can see more financial details on BallotPedia’s webpage about Prop 22.

    How Does Prop 22 Relate to AB5?

    In general, Prop 22 and AB5 are two sides of the same coin. They are mostly opposing forces; however, Prop 22 would likely not have come about if AB5 had not become a law.

    AB5 mandates that employers classify their workers as employees as opposed to independent contractors if they cannot pass the A, B, C test:

    • (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact.
    • (B) that the worker performs work that is outside the usual course of the hiring entity’s business
    • (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

    Employers can only call workers independent contractors if all of the above are true.

    AB5 does not come out and say specific language for gig workers and rideshare, which is one reason why companies have been able to avoid following it thus far.

    Prop 22 is proposing a new law that has language specifically addressing rideshare and gig economy companies and how they can classify their workers in relation to AB5 legislation.

    How Do Gig Workers Differ from Employees?

    In a nutshell? Flexibility and lack of benefits.

    Gig workers choose when they want to work. They have the ability to turn their app on when they are ready to start their day and turn it off to take a break or to be done working, even if it’s only 5 minutes after turning it on.

    Gig workers are typically able to cash out their earnings to get paid immediately instead of waiting for the weekly paycheck to come through.

    They are typically driving their own vehicles and therefore covering expenses that go along with owning a vehicle such as gas, maintenance, and even cleaning expenses.

    Gig workers are also typically in charge of making sure they have the proper insurance needed for their jobs as well as covering their own health insurance. If they want a day off of work, they simply do not log into the app that day. There is no paid time off or sick pay if something keeps them from working.

    Employees, on the other hand, would be more likely to be told or regulated when they can go online or have a limited number of hours allowed on the apps—limited in as far as not being allowed to work overtime. As it stands, gig workers are only allowed on one app for up to 12 hours in a row so they are forced off in order to get rest.

    There’s nothing in the text of AB5 that would require drivers as employees to work scheduled shifts but the reality is that if drivers are paid more, receive guaranteed wages and benefits, it just isn’t realistic that they could still log on wherever or whenever. A few examples to point out:

    • NYC’s Quasi Minimum Wage – NYC is the perfect case study for the potential downsides of an employee model. Drivers in NYC are guaranteed per mile and per minute rates that equate to a minimum wage determined by the city. This is great for drivers but it means that Uber and Lyft need their drivers to stay busy, otherwise they have to pay the difference. So they now require drivers to schedule blocks in advance and the priority is determined off seniority, rating, etc. Most drivers hate this new system but you can see how Uber and Lyft have to have some control over scheduling if they are required to pay a minimum wage. The question is, ‘is it worth it?’
    • Delivery companies – Most delivery companies like Doordash and Instacart have predictable peak demand times so they require drivers to book shifts in advance. This has been the setup since day one so although there are some complaints, drivers are used to it and it highlights the challenge in going from the current Uber ‘log in whenever you want’ model to a more rigid ‘scheduling system’. Even though, it aligns interests, it’s hard to take away the flexibility that drivers once had.

    Employees are also afforded certain benefits under the law depending on if they are part-time or full-time workers. Benefits may include health insurance or coverage; paid time off or sick pay; and other such benefits.

    Ultimately, there are a lot of unknowns when it comes to what will happen if drivers become employees. Most likely though, drivers will lose some flexibility, there will be less drivers, but those remaining on average will make more.

    Why Do Gig Companies Support Proposition 22?

    One big reason that gig companies like Uber and Lyft support Prop 22 is because of money. Obviously businesses need to do what’s best for their bottom line and “hiring” all of their current independent contractors as employees is not feasible.

    The CEO of Uber, Dara Khosrowshahi admitted during Harry’s interview that “There are going to be trade offs. I think that people are going to opt-in to their own preferences.”  You can watch Harry’s interview with the Uber CEO here:

     

    “What we will absolutely commit to is to be transparent about your earning expectations,” said Khosrowshahi during the interview.

    In the past transparency has been an issue, where drivers don’t know what their potential earnings could be. Uber’s CEO wants to be more transparent moving forward when it comes to earnings and those expectations.

    Changing drivers to becoming employees would take a complete overhaul of their business structure as it stands now, and there likely wouldn’t be room for everyone in the event of a transition.

    Khosrowshahi also mentioned in a recent article, “Uber’s response would be to limit the number of drivers allowed on its platform and to raise prices for customers after it eventually relaunches in the state. He predicted that upwards of 80 percent of those drivers who only log onto the app for 5-10 a week would no longer be able to earn on the platform.”

    That is a huge impact in the negative direction if Prop 22 does not pass and AB5 is enforced in its current state.

    On Lyft’s website, after threatening to close their doors if made to follow AB5 in August 2020, the Co-founders John Zimmer and Logan Green stated, “Our goal is still to give you benefits that do not limit your independence or choice of work.”

    They also stated that the progress of being able to continue services for now is just temporary and that in order to maintain operations, “it’s up to the voters to decide the future of rideshare in California in November with Prop 22.”

    What Are Drivers Saying?

    We asked Harry and a couple of our other contributors in California what they thought about Prop 22:

    Harry is a no on Prop 22, stating that:

    “I’ve been against AB5 from the get go, because the majority of drivers want to remain independent contractors. And I think it’s more important to do what’s best for the largest number of drivers.

    But when it comes to Prop 22, I’m also a no because I don’t think it goes far enough. Uber and Lyft have their backs up against the wall right now and their ‘compromise’ is a joke. Their ‘minimum wage’ only includes on app time so it doesn’t align incentives between drivers and the companies. So if the companies flood the app with drivers and you don’t get any rides, the minimum wage is useless. And there’s no bargaining or structural aspect that prevents them from giving drivers benefits and then just lowering rates in the future.”

    One of our senior contributors, Jay Cradeur, has some specific thoughts concerning Prop 22:

    “I don’t like surrendering my future to Uber or Lyft. In the past 4 years, they have consistently cut rates, bonuses and surge. Prop 22 gives Uber and Lyft what they want and that, in my experience, is good for Uber and Lyft but BAD for drivers. I would rather roll the dice and see what Uber and Lyft look like with drivers as employees. I honestly don’t know which is better for drivers, but given Uber and Lyft’s enthusiasm for Prop 22, that must mean more money for them and less money for drivers.”

    Another California driver and fellow Senior Contributor Gabe Ets-Hokin has another take. He’s definitely against Prop 22, but also doesn’t believe that an employee model is the way to go. Instead he offers a suggestion:

    “The main thing I want people to understand is that AB5 is not really a law. All it does is codify existing law. It doesn’t create anything. It doesn’t order Uber and Lyft to hire drivers as employees. All it does is say this is what an employee is and this is what an independent contractor is…The solution is for Uber and Lyft to adjust their business model so that we’re independent contractors. I could tell them how to do it in 5 minutes. It’s easy.”

    Whether you’re a California driver or not, what do you think about this proposition? Let us know in the comments below and we’ll add it here.

    Our RSG YouTube contributor, Cecily, has said regarding AB5/Uber and Lyft’s threat to leave California that it may be time for a complete change. Whether that’s a new rideshare company or a fundamental change in how Uber/Lyft interact with their drivers, it’s important that Uber and Lyft listen to drivers, instead of spending millions to force them to accept Proposition 22.

    What do you think about Proposition 22? Even if you don’t live in California, share your thoughts below!

    Our Position

    Prop 22 is a means to an end, to put it bluntly. It’s there to define what hasn’t been defined properly and to close a hole so lawmakers cannot go after the gig companies taking advantage of the ambiguity of the language in AB5.

    Does that mean it won’t work? Does that mean it’s bad or good for the drivers? Honestly, no one has a crystal ball to read the future, but neither seem to really keep the drivers wants and needs at the top of the importance column.

    As an outsider (not in California), I think Prop 22 has more merit and looks after the drivers more than AB5 does (though AB5 does not specify that companies cannot allow flexibility to their employees, which is something the majority of drivers want to maintain). But, I do like Gabe’s take on how it would all actually be solved quite easily if Uber and Lyft shifted their business model to reflect drivers as true independent contractors as defined by law. Our survey data shows that most drivers want to remain Independent Contractors but the big caveat is that they want to be actually independent – and as any driver can tell you, Uber does not make that easy.

    As far as implementing AB5 goes, if the CEO of Uber is already stating that he can’t hire every independent contractor as an employee, that’s a big problem.

    What’s even more concerning is the sheer number of drivers who would be permanently off the platforms—up to 80% according to Khosrowshahi. I wouldn’t want to roll the dice and see if I was magically one of the 20% allowed to remain on the platform.

    There is also the possibility that California will start to look more and more like New York City. In New York City, drivers are paid a minimum wage, but it’s not all ‘high earnings and driving when you want’. If there are too many drivers on the platform in an area that doesn’t have enough demand, some drivers are kicked off and not allowed to earn anything until the tides shift or until they move to a busier area of the city.

    No matter the outcome in November, I’m not looking forward to seeing what’s in store for rideshare drivers. I hope for the best.

    Drivers, what do you think about Proposition 22? Do you support it or not?

    Earn up to $25 an Hour with Instacart!

    instacart-1Instacart is hiring like crazy right now and offering many perks to drivers, including no under 5 star ratings and more. Sign up here.

    -Paula @ RSG

    Paula Gibbins

    Paula Gibbins

    Paula Gibbins, a graduate of Augustana University, Sioux Falls, is a part-time rideshare driver and a full-time proofreader. She is based in Minneapolis/St. Paul. In her free time, Paula enjoys reading, playing board games and participating in trivia nights.