How a California Ballot Measure Could Re-Shape the Gig Economy
California Proposition 22, The App-Based Drivers as Contractors and Labor Policies Initiative, is on track to pass by about 58.5% (8,188,917) votes as reported by the Associated Press on November 9th, 2020.
The approval of Prop 22 means that in California, app-based transportation (rideshare) and delivery drivers will be defined as independent contractors and adopt labor and wage policies specific to app-based drivers and companies. This proposition is an exception to California Assembly Bill 5, which otherwise would of required these workers to be classified as employees and be entitled to benefits and regulations found in the California Wage Orders.
Proposition 22 is the most expensive ballot measure to date in California, with $202 million spent by the favoring side and 19 million spent by the opposing side on this single issue.
The favoring side included gig driver delivery companies like Uber, Lyft, DoorDash, Postmates and Instacart. Opposing the measure was mostly labor unions and workers rights organizations.
The passing of Prop 22 is notable for “Gig Economies” where jobs are temporary and flexible as companies hire independent contractors/freelancers instead of full-time employees. Many companies such as AirBnb, Etsy, Fiverr, Upwork and Amazon Flex follow the gig model by letting people sell their products, services, or labor through their platforms.
The gig economy rose from the evolution and of service-oriented app-based companies. As these apps became more popular, the gigs started to benefit workers, businesses, and consumers by making work adaptable and flexible. Along with the freedom to set your own hours is a downside of uncertainty of pay, benefits, and stability.
This California election outcome preserves the business model of major food delivery and rideshare companies in California. Had Prop 22 failed to pass, there would have been a huge reclassification of gig workers in California, a huge expense to the already largely unprofitable delivery and rideshare market segment. California represents 9% of Uber’s global rides and Eats bookings, and is responsible for around 16% of Lyft’s total rides. The market’s reception to the passing of Prop 22 was positive, as shares of Uber rose 11.0% toward a near 9-month high and Lyft rose 14.9%.
"Uber and Lyft figure if they win in California they can win political fights in the rest of the states, and probably Congress," commented Robert Reich in an e-mail to CNN Business. "Labor unions recognize its importance as well. If Uber and Lyft win this, more employers around the country will classify more of their employees as contract workers. That would mean big savings to employers, since contract workers don't get Social Security or worker's compensation, minimum wage, or other labor protections. By the same token, workers would be disadvantaged."
Although this law saves companies and customers money, it is still likely that it will drive up the costs of riders’ fares to cover the new benefits of California drivers. Only time will tell if other states choose to challenge the independent contractor title of these types of workers, and which companies will be successful in defending their preferred labor model. It will also be interesting to see if other industries start to take on labor laws in court. But either way, the legislation in California is likely to set a precedent in favor of private companies given the state’s size and influence.