What is Proposition 22?
Proposition 22 – or Prop 22 – lets companies like Uber and Lyft continue to classify drivers as independent contractors. It emerged in response to AB–5, the California legislation that was intended to force companies to treat its drivers as employees, to pay them a minimum wage, and to provide them with benefits such as overtime, paid sick leave, and unemployment insurance. After receiving considerable backing from the major gig platforms, Prop 22 was passed by California voters in November 2020. As a result, gig workers will retain their freedom to choose their work schedule. They will also gain some benefits, including a minimum wage while working, subsidies towards health insurance, and accident insurance.
How does the passing of Prop 22 affect gig platforms?
Under Prop 22, firms such as Uber, Lyft, Door Dash, and Instacart will be exempt from having to classify gig workers in California as employees. In bypassing AB–5, platform companies will no longer need to apply the ABC test, which stated that in order to consider workers as independent contractors, workers must:
- Be free from the control of the hiring entity;
- Perform work that is outside the scope of the hiring company’s own business,
- Be regularly engaged in independent work.
The success of Prop 22 means that lawsuits currently underway in California, seeking to force companies to comply with AB-5, are much less likely to succeed.
The biggest benefit for platform companies like Uber and Lyft is financial: while they will need to pay a guaranteed minimum wage to drivers for the hours they spend driving (but not including time spent waiting for gigs), the companies no longer face the threat of having to pay for benefits like unemployment insurance for their drivers. In addition, they won’t face the costs of administering payroll for tens of thousands of employees, they won’t need to pay payroll taxes on what those employees earn, and they won’t be required to reimburse drivers for their work-related expenses, such as fuel and vehicle maintenance. Ultimately, this will lead to higher profits for the platforms.
How does the passing of Prop 22 affect gig workers?
Under Prop 22, gig workers maintain their status as independent workers: they are free to work when they want, as much as they want. They have complete control over their schedules. Prop 22 also provides gig workers with certain benefits:
- Gig workers will receive a guaranteed minimum wage while working – actively driving passengers or delivering food – but not for time spent waiting between gigs.
- They will receive a stipend for purchasing health insurance.
- They will be able to access insurance that provides insurance coverage for work-related illness or injuries.
- They will be protected by new policies that prohibit workplace discrimination and harassment.
Had Prop 22 been defeated at the ballots, the financial implications of AB-5 posed very real risks for California gig workers, as Uber and Lyft both threatened to shut down their operations in the state if the legislation came into effect. In that scenario, many gig workers would have lost their jobs, face income instability, and for those that maintained their status as employees, there was no guarantee that they would still have full-time work.
Addressing the concerns of gig workers who are opposed to Prop 22 because it hinders their ability to provide for their families, Jan Krueger, a California retiree and Lyft driver, points out that this type of gig work probably shouldn’t be a long-term, full-time gig, due to the high risk:
“One accident, and you’re out of a job.”
Krueger also believes that Prop 22 will ultimately deliver better wages and benefits than AB–5 would have and that at the end of the day, the flexibility of gig work far outweighs the benefits of traditional full-time employment.
How will Prop 22 affect gig workers nationally?
The success of Prop 22 may well make it less likely that legislation similar to AB-5 – as has been proposed in New Jersey and New York – will succeed. Prop 22 also offers a broad framework for rideshare and delivery platforms to begin offering some protections and benefits to their workers, while still letting them retain the benefits and flexibility of independent work.
Get more valuable insights from Moves and stay up to date on gig economy resources by signing up for our blog!