Open Journal Systems

On November 3, California asked its voters to consider twelve statewide propositions.[1] These ballot measures included four legislative constitutional amendments, seven initiatives, and a referendum.[2]  As county officials began counting ballots, the technology industry focused closely on Proposition 22, an initiative that sought to “[exempt] app-based transportation and delivery companies from providing employee benefits to certain drivers.”[3]  And, while official results will not be certified until December, preliminary results indicate that the initiative passed by a wide margin, collecting over 58 percent of the vote and marking a huge win for California’s gig economy. 

The implementation of Proposition 22 cannot be fully understood without first exploring the history of the ballot proposal.  In 2018, the California Supreme Court, in Dynamex Operations West, Inc.  v.  Superior Court, held that the “ABC” Test is an appropriate metric to determine whether a worker is properly classified as an independent contractor.[4] Under this standard, a company may classify a worker as an independent contractor only upon establishing:

“(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work [ …]; (B) that the worker performs work that is outside the usual course of the hiring entity's business; and (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.”[5]

This classification metric added to the ongoing regulatory debate over whether app-based company drivers should be considered “independent contractors” or whether they should be reclassified as “employees.”[6] The ABC Test seemingly indicated that such drivers should be reclassified; however, neither Uber nor Lyft changed their employment structure.  Next, in 2019, California’s legislature passed A.B.  5 in a 29-to-11 vote.[7]  This law codified the Dynamex test, mandating that “a person providing labor or services for renumeration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied.”[8] The bill goes on to restate the ABC test, reinforcing that workers may only be deemed independent contractors if (1) they are free from the control and direction of the hiring entity, (2) they are performing work that would not fall within the normal scope of the employer’s business, and (3) they customarily and independently engage in work of a similar nature to the service in question.[9]  Rather than willingly comply, Uber, Lyft, and others in the gig economy, sought to raise the issue on the 2020 ballot.[10]

Article II, Section 8 of the California Constitution grants Californian electors the power to propose, adopt, and reject state statutes.[11] To exercise this right, a petition setting forth the proposed text must be signed by a sufficient number of electors, in an amount equal to 5 percent of the votes cast for all candidates in the most recent gubernatorial election, and must be presented to the Secretary of State.  Upon fulfilling these requirements, the proposals are to be included either on the upcoming general election ballot or in a special election.[12] Proposition 22 was drafted and included on the general election ballot under this provision.

That the initiative likely passed is significant for technology companies that rely heavily on gig workers.  The remainder of this post examines the proposition in greater detail and discusses its possible consequences. 

The official summary of Proposition 22 indicates that the law would “[classify] app-based drivers as ‘independent contractors,’ instead of ‘employees” and further indicates that such drivers would be afforded “other compensation” in lieu of protections typically granted to employees.[13]  The summary also includes brief arguments both for and against the initiative.  A “no” vote, it suggests, would prevent companies from denying drivers standard employment protections, such as sick-leave, healthcare, and unemployment.[14] On the other hand, a “yes” vote would afford drivers greater flexibility in setting their hours, while offering new benefits to them.[15]  These benefits include minimum earnings (limited by time spent actually transporting passengers), healthcare subsidies, and vehicle insurance.[16] Reportedly, $224 million was spent on a campaign favoring the initiative, largely funded by the impacted, app-based companies.[17] This campaign indicated that with reclassification from “Independent Contractors” to “Employees” both drivers and consumers would suffer, with less flexibility for drivers and higher prices facing consumers.[18] Clearly, the messaging was successful – as of the time of this writing, the bill is projected to pass in all but nine of California’s counties.[19] 

Despite overwhelming support for the initiative, however, it is still unclear how California will enforce its guidelines and how the federal government might respond.  With the passing of Proposition 22, app-based companies are now exempt from A.B.  5; however, the initiative’s text did not indicate that it applies retroactively.[20]  Consequently, several gig economy companies remain subject to litigation for the period between January 2019, when A.B.  5 was signed into law, and November 2020.[21] Such litigation has been ongoing since May 2020, when the city attorneys for Los Angeles, San Diego, and San Francisco, along with the California State Attorney General sued Uber and Lyft.[22] 

A second uncertainty arising in the wake of Proposition 22’s passing is whether gig economy companies might push for similar legislation at the federal level.  In a November 5 interview, New York Times Tech Reporter Kate Conger suggested that these businesses want to push for such rules.[23]  She notes that handling inconsistent local regulation has proven costly for driver platforms and that a federal law might ease their legal challenges.[24]  Passing federal legislation, however, could prove difficult.  First, President-Elect Joe Biden disfavors the California initiative.[25] Moreover, in Congress, a bipartisan anti-tech sentiment has developed.  While legislators have not yet focused this sentiment on the gig economy, it is not a far leap.[26] Finally, while Uber, Lyft and their peers were successful in California, the referendum campaign was the most expensive in the state’s history.[27]  With federal disapproval, and the media calling on lawmakers not to follow California’s lead, gig economy companies will face an uphill battle.[28]

Footnotes

[1] https://electionresults.sos.ca.gov/frequently-asked-questions

[2] Id.

[3] https://voterguide.sos.ca.gov/propositions/22/

[4] Dynamex Operations W.  v.  Superior Court, 4 Cal.  5th 903, 232 Cal.  Rptr.  3d 1, 416 P.3d 1 (2018)

[5] Id.

[6] https://www.nytimes.com/2020/11/04/technology/california-uber-lyft-prop-22.html

[7] https://www.nytimes.com/2019/09/11/technology/california-gig-economy-bill.html

[8] 2019 Bill Text CA A.B.  5

[9] Id.

[10] https://www.nytimes.com/2020/11/04/technology/california-uber-lyft-prop-22.html, supra note 6

[11] Cal Const, Art.  II § 8

[12] Id.

[13] https://voterguide.sos.ca.gov/propositions/22/

[14] Id.

[15] Id.

[16] https://www.ft.com/content/40d579fe-37ac-4791-82b1-13b609bb5661

[17] Id.

[18] Id.

[19] https://electionresults.sos.ca.gov/returns/maps/ballot-measures/prop/

[20] https://www.natlawreview.com/article/california-voters-pass-proposition-22-allowing-app-based-ride-share-and-food

[21] Id.

[22] https://www.nytimes.com/2020/11/04/technology/california-uber-lyft-prop-22.html, supra note 6

[23] https://www.nytimes.com/2020/11/05/technology/uber-lyft-gig-work.html, supra note 7

[24] Id.

[25] Id.

[26] https://www.nytimes.com/2020/11/04/technology/california-uber-lyft-prop-22.html, supra note 6

[27] https://www.ft.com/content/40d579fe-37ac-4791-82b1-13b609bb5661, supra note 16

[28] Id.