Last November the residents of California told the state, by a fairly substantial margin, to keep their labor employment law mittens off of rideshare gig workers. Proposition 22, designed to “define app-based transportation (rideshare) and delivery drivers as independent contractors and adopt labor and wage policies specific to app-based drivers and companies,” passed with a 58.6% to 41.4% vote. It was a defining chapter in the ongoing battle surrounding the sharing economy, and to a greater extent, the world of independent contracting.
And Prop 22 goes beyond exempting gig economy rideshare drivers. It may actually be a foundational solution for the challenges that exist in the sharing economy employment puzzle.
It all started, of course, with the California Supreme Court and the Dynamex decision. That case found the court establishing their own 3 point “ABC Test” that effectively classified every worker in the state as a regular employee. The world of independent contractors looked to be over. The state in response passed AB5, which was intended to define who could still be considered an independent contractor. While the process resulted in numerous and interesting carve-outs, the rideshare guys were quite intentionally omitted. The state, and perhaps more than one or two unions, seemed committed to wrapping their arms around that sector and making them comply with standard employment practices (and perhaps pay those delectable union dues).
So, Prop 22 was placed on the ballot, and a well-funded war chest was set up by three gig-based companies, Uber, Lyft, and DoorDash to support and promote it. The rest, as they say, is history.
The truly interesting thing about Prop 22, however, is that it does more than just prevent the state from regulating these workers as employees. It also sets up requirements for basic benefits and protections, including:
- payments for the difference between a worker’s net earnings, excluding tips, and a net earnings floor based on 120% of the minimum wage applied to a driver’s engaged time and 30 cents, adjusted for inflation after 2021, per engaged mile;
- limiting app-based drivers from working more than 12 hours during a 24-hour period, unless the driver has been logged off for an uninterrupted 6 hours;
- for drivers who average at least 25 hours per week of engaged time during a calendar quarter, require companies to provide healthcare subsidies equal to 82% the average California Covered (CC) premium for each month;
- for drivers who average between 15 and 25 hours per week of engaged time during a calendar quarter, require companies to provide healthcare subsidies equal to 41% the average CC premium for each month;
- require companies to provide or make available occupational accident insurance to cover at least $1 million in medical expenses and lost income resulting from injuries suffered while a driver was online (defined as when the driver is using the app and can receive service requests) but not engaged in personal activities;
- require the occupational accident insurance to provide disability payments of 66 percent of a driver’s average weekly earnings during the previous four weeks before the injuries suffered (while the driver was online but not engaged in personal activities) for upwards of 104 weeks (about 2 years);
- require companies to provide or make available accidental death insurance for the benefit of a driver’s spouse, children, or other dependents when the driver dies while using the app;
By enacting a measure that not only defines the role of these drivers but also for the first time creates employment style protections for them, the measure may in fact be a blueprint for future actions across the nation. In some ways, the proposition has enacted DOT style regulations for them but also addresses the employment risk and benefit equation. The sharing economy has been of particular concern to the workers’ compensation industry, as we recognize the potential hazards of a large, unregulated, and uninsured workforce. It was and is in many ways a ticking time bomb. People injured on the job with no safety net are likely headed to financial disaster and end up resting on the backs of the taxpayer. By establishing the provision of basic benefits that mimic to some extent those of recognized employees, those concerns are largely ameliorated.
The battle is not over. There has been a fair amount of hysteria over the outcome of the election, with some critics saying the gig company backed effort was “effectively creating a political template for future anti-democratic, corporate law-making.” And of course, court cases have been filed in California challenging the constitutionality of Prop 22. It should be no surprise that one of the plaintiffs driving the effort is the Service Employees International Union (SEIU). Obviously, unions can’t organize employees that aren’t part of a recognized workforce.
On both sides of any equation, always follow the money.
The gig economy, enabled by technology, has in many ways revolutionized sectors of our economy while at the same time returning it to its pure capitalistic roots. People with excess capacity in a particular service may be now be located by people in need of that service. It is a simple concept enveloped by complex legal and ethical challenges. If Prop 22 is allowed to stand, it could serve as a guide to solving those challenges.