Economic Policy
July 12, 2022

California’s Proposition 22: The Future of the “Gig Economy”

What is Proposition 22?

Proposition 22 was recently approved by voters in the November 3rd general election. Prop 22, also known as the App-Based Drivers as Contractors and Labor Policies Initiative, would consider app-based drivers to be independent contractors, as opposed to employees. It defines these app-based drivers as “workers who (a) provide delivery services on an on-demand basis through a business’s online-enabled application or platform or (b) use a personal vehicle to provide pre-arranged transportation services for compensation via a business’s online-enabled application or platform. These independent contractors will have limited access to benefits and other forms of worker protections, such as minimum wage. Proposition 22 would be extremely difficult to amend, as it would require a 7/8s supermajority of the legislature.  

Legislation History 

The background of Prop 22 is the emergence of the “gig economy”, which is based on flexible, temporary, or freelance jobs, typically connecting clients and customers through an online platform.  This has led to the rise of several large companies, especially in the ride-share and food delivery service industries. Some of these companies include familiar names such as Uber, Lyft, Airbnb, Amazon Flex, Etsy, Fiverr, and many more.

The economic effect of these “gig companies” can be debated both ways. On one hand, these gig-based platforms offer people with a wide selection of skills the ability to earn money by performing "gigs" for other people, including picking up groceries, walking dogs, and giving people a lift downtown. This means a massive increase in jobs available - Uber alone creates upwards of 20,000 jobs every month. However, the gig economy has been very detrimental to workers competing in the same industry. For example, more and more taxi drivers are having to convert into Uber drivers, forcing them to forego benefits such as paid sick leave and minimum wage. Another example is Airbnb, which has caused economic stress on the hotel industry throughout the country and internationally. This rapid change in the labor market has faced lawmakers with challenges on how to respond. 

In April of 2018, the California Supreme Court issued a landmark decision in the matter of “Dynamex Operations West, Inc. v. Superior Court of Los Angeles. In this decision, the California Supreme Court changed how it is decided whether a worker is a contractor or an employee. It rejected the Borello test, which previously was the method by which this was decided. The Borello test was established back in 1989 and used a multitude of factors to make the decision. Since it used so many factors, it was more difficult for businesses and workers to determine the status of the worker. The new, more worker-friendly, test presumes that workers are employees rather than contractors. It was also designed to be more predictable than the Borello test. This new test is called the “ABC test”.  It assumes a worker is an employee unless the employer proves the following.

  1. The worker is freed from control and direction of the hiring entity in connection with the performance of the work, both under contract for the performance of the work and in fact;
  2. that the worker performs work that is outside the usual course of the hiring entity’s business; and
  3. that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. 

In September of 2019, Gavin Newson signed California Assembly Bill 5 into law. This expanded on the ruling in the Dynamex case and required companies to reclassify independent contractors as employees.  Uber and Lyft resisted this ruling, leading to a second court ruling from a California Superior Court Judge on August 10, 2020. Again, this decision required companies to reclassify contract drivers as employees, with all the same benefits as other types of employees. California Proposition 22, voted on on November 3rd, 2020, was introduced to give the matter to the voters. Had Proposition 22 failed, the corporations would likely have taken the case to the state’s supreme court once again. 

Special Interests 

There are very clear divides between the people who supported Proposition 22 and those who are against it. Robert Reich, the former US Secretary of Labor, said, “Prop 22 is great for employers, but it’s a huge loss for workers. This will encourage other companies to reclassify their workforce as independent contractors and once they do, over a century of labor protections vanishes overnight.” Other CEOs, such as those of Uber and Doordash, raved about the bill. For example, Tony Xu, the CEO of Doordash, said, “Now we’re looking ahead and across the country, ready to champion new benefits structures that are portable, proportional, and flexible.” He described Proposition 22 as a “new, progressive approach to the future of work that provides certainty, economic security, and continuity for the millions of Californians who look to DoorDash to earn supplemental income.” 

Groups opposed to Proposition 22 are mostly workers groups, such as the California Labor Federation. They state that “Prop 22 was written for app companies, by app companies - not for workers and our families.” Another labor group, We Drive Progress, delivered a similar statement: Prop 22 is “nothing more than a scheme to fleece taxpayers for CEO profits while decimating the rights and protections drivers deserve.” 

The spending for and against this bill reflects the nature of these respective interests. Those in favor of the bill spent a staggering 203 million dollars, while those opposed spent just $20 million, meaning that those in favor of the bill spent over 10 times the amount of money as those opposed. This makes it the most expensive ballot measure ever financed in Californian history. Before this, the record for spending on a ballot initiative was just $111 million, which was spent by kidney dialysis companies in 2018. 

Exploitive or Empowering?

Those in favor of Proposition 22 often argue that the services provided by these app-based companies will become more expensive. They also argue that companies will be forced to hire fewer workers and introduce regulations on employees that make employment less flexible. Some even take a labor-minded approach, arguing that Proposition 22 is good for workers. To demonstrate, we can compare taxi drivers to Uber drivers. While taxi drivers earned more money, they had to dedicate all their time towards the job, to pay off their taxi medallion, which could cost upwards of $250,000. By contrast, there is no equivalent to a taxi medallion for Uber drivers, and they can dedicate any amount of time towards driving as they wish.  Additionally, Proposition 22 does include some benefits for workers, though they aren’t substantial. It grants workers medical subsidies, workers compensation, and earning floors for the time actively driving passengers. Those in favor of  Prop 22 also argue that, if Prop 22 is rejected and they are made to comply with Assembly Bill 5, Uber and Lyft will have to cut their combined workforce from over 500,000 to about 100,000 workers. From a consumer standpoint, they argue that a lower workforce means that wait times for those using these apps will increase, and prices will rise to compensate for providing benefits. 

Those opposed to Proposition 22 see it as an exploitive bill paid for by CEOs to avoid giving workers benefits to increase profits. A century of worker’s rights law in California will be completely reset by a simple definition change from “employee” to “contractor”. Proposition 22 allows companies to avoid paying overtime, minimum wage, and paid sick leave. It also allows discrimination based on immigration status, which is important, considering over 50% of app-based drivers are immigrants. Under Assembly Bill 5, workers are entitled to a minimum wage of $15/hour, while under Proposition 22 it could reach as low as $5.64/hour. Under Assembly Bill 5, there is employer-provided healthcare, 3 days of paid sick leave, and workers are eligible for Unemployment Insurance. They are also eligible for workers’ compensation, and business expenses will be covered by the employer. These are standards across every industry in California, except app-based employers, which are attempting to segregate themselves out of general labor protections. Almost 75% of app-based drivers work full-time; however, they have none of the labor protections that other employees have. 

These arguments tell us that while there are some legitimate reasons to support Prop 22, overall this is simply a bill to make corporations as much money as possible while leaving workers without benefits, which should already be guaranteed under California law. 

Final Thoughts

This bill is an attempt to guarantee the long term viability of Gig Giants such as Uber and DoorDash by putting their legal troubles to an end. The 7/8s majority required to amend this bill is a crucial but under-discussed aspect of the bill, as it means it will likely stick around for a long time. Passing Prop 22 means that workers will continue to be defined as contractors, and thus will forego sick leave, unemployment, and other standard benefits that are regularly provided to employees. 


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