California’s Proposition 22 Presents an Alarming Turning Point in Labour Law

Researchers from the Fairwork Foundation, Shelly Steward, Pablo Aguera Reneses, Srujana Katta, and Professor Mark Graham explain what the Proposition 22 would mean for workers employed in the gig economy.

Gig platform work emerged out of California’s Silicon Valley more than a decade ago. But since well before the age of smartphones and ridesharing, the state was a leader for workers’ rights, passing one of the first minimum wages in the United States and inspiring the country’s agricultural labour movement. Next Tuesday, California will again make labour history when it votes on Proposition 22. This measure, which gig companies introduced and have spent more than $199 million promoting, would legalize the classification of app-based transportation and delivery drivers as independent contractors, circumventing a state law (AB5) passed last year that implies they are employees. Given ongoing contention over gig worker classification around the world, the outcome of this vote will have major implications for future regulation across the U.S. and beyond.

Worker Classification in the U.S.

The U.S. has a binary system of employment classification, in which workers are either employees or independent contractors. Typically, employees are hired to work directly for a company, which is required to provide and pay for a range of benefits and protections, including a minimum wage, unemployment insurance, workers’ compensation insurance, and employer contributions to Social Security and Medicare. Independent contractors, often hired to perform discrete services or projects, are not covered by these protections, and, in theory, have a greater degree of control over the way they charge for and complete their work. The criteria used to define employment status are inconsistent and often complicated; they can vary between agencies within a state, between states, and between states and the federal government.

The platform-based gig economy, which relies on large numbers of workers classified as independent contractors, has brought renewed attention to questions of employment classification in the U.S. In the past five years, both Uber and Lyft have settled lawsuits alleging they exerted enough control over their drivers that they were owed the benefits and protections of employment. Fearing similar lawsuits, the gig company Handy drafted and lobbied legislation defining gig workers as independent contractors, which has passed into law in seven states.

California, home to more gig workers than any other state, had applied an 11-factor test in determining worker classification since 1989. In May 2018, the state’s Supreme Court changed course, adopting a simpler, 3-factor employment classification test in the landmark Dynamex Operations West, Inc. v. Superior Court case. Under this test, often called the ABC test, a worker is assumed to be an employee until a company establishes that: (A) they are free from control or direction, (B) they perform work that is outside of the company’s usual course of business, and (C) the worker is engaged in an independently established trade or business. The following year, Assemblywoman Lorena Gonzelez introduced Assembly Bill 5, which codified the Dynamex case and established the ABC test as the state’s criteria for employment classification across industries. After passing the state Assembly and Senate, it was signed into law by the governor in September 2019. Although AB5 exempts certain industries, it does not mention gig workers, and a judge recently confirmed that rideshare drivers are employees under the law.

A coalition backed by Uber, Lyft, and DoorDash calling themselves “Save App-Based Jobs and Services” filed Proposition 22 just a month after AB5 passed, after gathering the required 600,000 voter signatures. The proposition exempts app-based transportation and delivery platforms from AB5, allowing them to classify their workers as independent contractors and providing in exchange some modest protections. The coalition has spent more than US$199 million promoting this measure, the largest sum ever spent on any ballot measure in American history. These funds have been used on an aggressive marketing campaign, which has relied on misleading surveys showing high levels of support and fliers distributed alongside delivery orders. Workers have filed a lawsuit, believing these tactics constitute illegal political coercion. Labour unions have backed “No On Prop 22,” supported by Gig Workers Rising, We Drive Progress, Mobile Workers United, and Rideshare Drivers United. With a tenth of the funding, this coalition has had less presence but has organized several protests and driver caravans.

Proposition 22 Does Not Meet Fairwork Standards

The Fairwork principles for fair platform work provide a framework for understanding the potential impacts of Proposition 22 on California’s gig workers. The principles – concerning workers’ pay, conditions, contracts, management and representation- were developed by researchers based at the University of Oxford, in collaboration with platform operators, policymakers, trade unions, and academics. The Fairwork framework is being applied as a comparable measure of decent work standards for the platform economy in over 10 countries. The Fairwork U.S. chapter will be launched in 2021.

For each of the five Fairwork principles, we compared workers’ entitlements should the proposition pass, with their entitlements if they were to be classified as employees, as mandated by AB5. Although proponents of Proposition 22 have claimed it provides gig workers with essential workplace protections, our analysis shows that overall, these are watered down and insufficient versions of the protections ensured by employment. The following sections outline the implications of Proposition 22 for each of the Fairwork principles.

Fair pay:

Rather than ensuring a minimum wage for time spent on the job, Proposition 22 provides an earnings floor for engaged time, which is the time from when a driver accepts a ride to when they drop off a passenger. This means that all the time they spend waiting for and between rides – which can be half their time – is uncompensated. In addition, although the earnings floor is set at 120 percent of the state’s minimum wage, it is averaged every two weeks, meaning that for any hour of work, there is no guarantee to a set wage.

Rather than providing reimbursement for mileage and other expenses, as employees are owed, the earnings floor includes an additional 30 cents per engaged mile. This amount is barely half the standard mileage reimbursement rate used by the federal government (57.5 cents per mile).

Finally, though Proposition 22 would prohibit drivers from working more than 12 hours per day, it does not provide overtime compensation, which they would be eligible for as employees after working 8 hours in a day or 40 hours in a week.

An analysis undertaken by the University of California, Berkeley Labour Centre estimated that when factoring in waiting times and unreimbursed costs, the earnings floor of Proposition 22 could be as low as US$5.64 per hour for rideshare drivers, less than half of California’s minimum wage of US$13 per hour, and just one third of what the Yes on 22 campaign claims drivers would earn.

Fair Conditions:

The healthcare provisions of the proposition are similarly scant. Under Proposition 22, drivers who work an average of 15 to 25 hours over three months are paid almost half the cost of a public health insurance plan, and those averaging more than 25 hours per week are paid most of the cost. These minimum work times too refer to ‘engaged’ time, meaning that drivers would in reality have to work substantially longer to become eligible for the stipend. Although the proposition refers to this as a healthcare stipend, it is simply an additional payment. As employees, full-time drivers would be afforded access to an employer-sponsored health plan, which they would contribute to the cost of, along with their employer. Part-time employees would not have the same access, but a true minimum wage for all time spent working would put them in a much better position to cover the cost of a public plan.

Although pay and healthcare are the primary concerns of most workers, the other benefits offered by the proposition also pale compared to those provided by employment. For example, under law, all employees are covered by workers’ compensation insurance. This insurance covers the costs of work-related sickness or injury, including medical expenses, lost wages, and death benefits, typically without limits. Proposition 22 would provide gig workers with occupational accident insurance, which is a less regulated form of insurance with limits to the amounts’ workers can be paid. It also excludes permanent disability benefits.

Similarly, Proposition 22 offers workers privately operated, limited temporary disability insurance, rather than access to the successful state-run program. In addition to being a more limited offering, the proposition shifts participation away from the state-run program, potentially decreasing its solvency and ability to meet the needs of workers across the state and contributing to the privatization of key public benefits.

Fair Management:

One of the few areas where the protections offered by Proposition 22 resemble those offered to employees are its protections against discrimination and harassment. However, under California state law, all independent contractors are included with employees in protections against discriminatory harassment, so the proposition is giving them little they do not already have.

Fair Representation:

If Proposition 22 passes, as independent contractors, drivers would not have the right to unionize or collectively bargain. If Proposition 22 is rejected, though, drivers would still not immediately have those rights, even as employees. Federal laws regarding collective bargaining would still pre-empt the state’s classification determination. However, if federal legislation were to align in the future, as employees, drivers would gain these essential and empowering rights.

Looking Forward

Although Proposition 22 is full of concerning provisions, perhaps the most troubling aspect of the proposition is that it includes provisions that make it nearly impossible to amend. Future changes require a seven-eighths majority of state lawmakers, and it prohibits local governments from innovating related policies. If Proposition 22 passes, the only feasible route to amend or overturn it is to introduce another ballot measure in a future election cycle. Given the huge amount of money platform companies have spent promoting a measure that protects itself from amendment by elected leaders, Proposition 22 represents an attempt to replace the democratic process with corporate interests.

Whatever happens on Tuesday, Proposition 22 will leave work to be done. If voters say no, there will be a long road ahead ensuring drivers are provided with the employment protections they are owed. Even then, many, along with millions of other low-wage workers, will likely continue to struggle to earn a living wage and achieve financial security. Turning down this measure is a step forward, but a small one toward the goal of fair work conditions for all.

If voters say yes, the future is much more difficult. Proposition 22 creates and codifies a new underclass of workers that have neither the independence to set their own rates, nor the protections and benefits of employment. This vulnerable class consists disproportionately of workers of colour, exacerbating the structural racism embedded in American society. Rather than being defined by the nature of work being performed, as in all previous classification criteria, this class is defined by the technology used to arrange work. Allocating rights and protections based on how work is arranged opens the door for employers to exert high degrees of control without any of the protections’ workers have fought for decades to win. If Proposition 22 passes, it will set a dangerous precedent in U.S. labour law, opening the door to a slippery slope of continually deteriorating work conditions across the U.S., and potentially beyond the country’s border

Find out more about the Fairwork Foundation, including recent reports about the impact of Covid-19 on gig workers and analysis of Fairwork conditions in Germany and South Africa.