Instead of making their workers employees, Uber, Lyft, DoorDash, Instacart and Postmates spent $110 million to sponsor a ballot measure that could exempt them from AB 5. The measure proposes keeping drivers as independent contractors, while adding benefits like an "earnings guarantee." Last Friday, the measure officially qualified for the November election.
Reich, who's authored several reports on gig workers and employment status, is conducting a similar study using California data. He said ride fares would likely increase if drivers become employees, but not by as much as Uber estimates. He believes they'll rise between 5% and 15%, which would mean passenger demand would fall around 3%.
Both companies had threatened to shut down if a ruling went into effect Friday morning that would have forced them to treat all their drivers as employees, a change they said would be impossible to accomplish overnight.
Both companies had sought the stay of an August 10 court decision that ruled they must start treating their drivers as employees, not independent contractors, by Friday morning. Both appealed and sought a stay on the decision.
Chris Shimoda, vice president of government affairs with the California Trucking Association, says trucking has been a pathway for people without advanced degrees to make more money. In fact, about 80% of drivers in the industry have a high school education or less, he said.
For now, the rules proposed by the DOL won't make drivers into employees, who would also be entitled to benefits such as minimum-wage protection, overtime pay, and to be paid when they are at work but don't have a passenger in their car. Such a move would likely also cause pressure on the companies to offer the drivers health insurance and vacation pay, especially for the minority of drivers who do gig work full-time, though Morgan Stanley analyst Brian Nowak said state-level litigation could also force such change.
For now, the DoL rules will apply a broader series of tests to determine who is a truly independent contractor and who's not. The companies point to the flexibility of rideshare employment, which lets drivers set their own hours, as a sign that drivers are independent contractors. Advocates for drivers being treated as employees argue that Uber and Lyft set workers' pay, dispatch them to trips, and monitor their work as closely as they would an employee's, even using technology to ask passengers in mid-ride whether their driver is acting erratically based on a vehicle's speed.
In Washington, drivers are still considered contractors, but Seattle drivers are guaranteed $1.65 a mile, which he said is more than double the prevailing rate in California, effective next Jan. 1. (Rates will be lower elsewhere in Washington). They also will get worker's compensation insurance, paid time off and a right to appeal if they are effectively terminated by the companies.
Prop 22 will exempt these and other "gig economy" companies from a law that would have forced them to treat drivers and delivery workers as employees. Instead, they will be able to continue treating them as independent contractors, saving the companies money on employee expenses such as paid sick days, unemployment insurance and health care.
The case on which the court ruled involved delivery drivers whom Dynamex treated as employees until 2004, when it reclassified its drivers as independent contractors. Dynamex allowed its drivers to designate which days they worked, so long as they provided advance notice, and to plan their own routes and to hire assistants to deliver packages, so long as they completed all deliveries on the scheduled day. As independent contractors, drivers were responsible for all the costs of the delivery vehicle, including insurance, gas, tolls, and maintenance.
Uber and Lyft both refused to comment for this story, instead referring Business Insider to Stacey Wells, a spokesperson for the Protect App-based Drivers Services Coalition, a group funded largely by Lyft, Uber, and DoorDash that is seeking to reverse AB5 through a ballot measure and says it has the support of 55,000 drivers and delivery people.
"Everyone is looking to California right now and they're all following it with bated breath because they recognize that likely whatever happens in California is going to sweep across the country," says Monique Ngo-Bonnici, a private attorney who represents businesses.
Durbin says Lyft and other similar gig companies pushed California lawmakers for a middle ground that would grant independent contractors a narrower set of benefits, like minimum wage guarantees, without making them full-fledged employees.
"What they'd like is to say, basically, if you're hired through an app that there's something different ... and maybe some of the laws should apply but a lot of the laws shouldn't, and I think that's ridiculous," Gonzalez says. "It's dangerous to say if you're hired through an app, you're somehow different because pretty soon we'll all be hired through an app."
Gonzalez argues that for too long, some companies skirted their financial and legal responsibilities to their workers by misclassifying them as independent contractors. Those who haven't been doing that, she says, support her proposal.
The net result, labor experts say: The companies will save billions of dollars a year in operating costs, helping to ensure their survival and the availability of this type of gig work for the hundreds of thousands of Americans who make their living or supplement their income by delivering passengers, food and other goods to their desired destinations. But survival comes at a potentially high cost for these workers, who will now be entitled to fewer protections around pay, healthcare, sick leave and other issues than they'd be entitled to as employees. Proposition 22, Ken Jacobs, chair of the Labor Center at the University of California-Berkeley, says bluntly, "will take away basic rights and benefits for drivers under the law."
Thornberg says ever since the bill was passed, the state has been "handing out exemptions in every direction." Less than a month into its implementation last January, a state judge ruled the bill wouldn't apply to truckers. And in September, California Governor Gavin Newsom signed an emergency measure to modify AB5 and loosen requirements for writers, photographers, musicians and other creative professionals. Now with Prop 22 passed, ride-sharing drivers will also be exempt.
That said, AB5 did raise important questions about how companies treat independent contractors and clearly was the driving force behind the inclusion of some limited benefits in Prop 22. Among them: The measure establishes a new pay structure for app-based drivers that offers them 120 percent of the local minimum wage, health insurance subsidies on a sliding scale for drivers who work at least 15 hours a week and reimbursement of 30 cents a mile while they're on a trip or en route.
"I'll sit around and wait for an hour and finally get a ride, and it's five bucks," says Kimberly James, 45, a full-time gig worker in Georgia who drives for Uber. James says that when the apps were first introduced, she was able to earn a decent income, but with more drivers using them, it's become a less lucrative income stream. These days, driving for Uber feels less like a way to earn extra income and more like she has no other choice. "They keep changing things and now I don't know what I'm going to do," she says. "My car payment was due two weeks ago."
The discussions will be about more than compensation. As a driver, James says she's been sexually harassed several times. "One guy was sitting in the backseat of my car and pulled out his penis. Someone else pulled a gun on me," she says. "You report it to Uber, but they just say they won't pair you with that rider anymore." Another driver, 28-year-old Erika Betts, says the automated, hands-off business model of the apps is also problematic. "The fact that I don't have a direct boss is a big barrier," she says. "It's created an unsafe, insecure environment for workers. That's why I think the reclassification was needed."
"I also have a multitude of health issues that make it hard to do a traditional job," says James, who believes many of her fellow drivers are in the same situation. "They're disabled, or they're single moms who need flexibility with child care, or they're elderly and they can't find work." This dynamic is what allows these companies to function, she says. "We're desperate for work, and they know it."
For their part, ride-sharing companies are breathing a sigh of relief, Thornberg says. "Albeit a temporary one, in as much as California is not the only state taking aim at these systems." Other cities, states, and countries continue to debate the rights of gig workers. Britain's Supreme Court is currently deciding whether two Uber drivers are entitled to employment protections; Canada recently ruled in favor of a driver in a similar case. The Massachusetts Attorney general is suing Uber and Lyft over alleged labor misclassification, and the state of New York recently ruled that Postmates drivers should be considered employees who are entitled to unemployment benefits.
Time will tell whether the passing of Prop 22 actually addresses worker exploitation in a meaningful way. But in the meantime, it's a conversation that should be ongoing. "I hope they can find a happy medium so that we can continue to provide these services," Betts says. "But it can't be at the expense of workers. We're left with little to no options."
Since Proposition 22 considered app-based drivers to be independent contractors and not employees, state employment-related labor laws did not cover app-based drivers. Proposition 22 enacted labor and wage policies that are specific to app-based drivers and companies, including:
Taxi drivers are generally contractors. While many say they might benefit financially by making minimum wage and overtime plus benefits, they also fear their industry is so financially precarious that the additional expenses could make it collapse. 2b1af7f3a8