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Proposition 22 (Prop. 22) & Gig Worker Classification

independent contractor laws for gig workersIn November, Californians voted in favor of Proposition 22 (Prop. 22), a measure which classified gig workers as independent contractors. Prop. 22 was met with controversy from those who argued that it would negatively impact workers. What can we expect its impact to be?

Worker classification is a hot topic in employment law, especially with the rise of the gig economy in recent years. State and federal laws and regulations define who is an “employee,” and therefore is entitled to benefits and protections such as a minimum wage, overtime, paid sick leave, and workers’ compensation. Companies like Uber, Lyft, DoorDash, and TaskRabbit argue that their workers should be classified as independent contractors, not employees, because they only work on a part-time, contractual basis. Notably, independent contractors do not receive the same benefits or protections as employees.

In 2019, the California legislature passed A.B. 5, which adopted the “ABC test” set forth in the 2018 California Supreme Court case Dynamex v. Superior Court. In Dynamex, the Court held that they would presume workers were employees, not independent contractors, and place the burden on a business classifying workers as independent contractors to prove that this classification was proper through satisfaction of the “ABC test.” Under this test, a worker is considered an employee unless the employer proves:

(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work and in fact;
(B) that the worker performs work that is outside the usual course of the entity’s business; and
(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature of the work performed.

As a practical matter, A.B. 5 meant that many more independent contractors would be reclassified as employees, and therefore entitled to protections like workers’ compensation and unemployment insurance. Uber and other large tech companies reacted strongly to A.B. 5, arguing that its standard was far too generous toward workers, and that they should be exempt from the bill’s requirements because their workers weren’t really employees. These companies also strongly opposed the bill because they said it would cut too far into their bottom line if they had to treat their workers as employees. Uber and Lyft even threatened to leave California. Instead, however, they spent a record $200 million on ad campaigns encouraging Californians to vote yes on Prop. 22, which exempted app-based companies from complying with A.B. 5’s requirements.

Prop. 22 included some built-in worker protections, but as a study by the UC Berkeley Labor Center observed, they are meager. For instance, the initiative guaranteed that drivers would be paid at least 120% of the minimum wage. This figure works out to $15.60 per hour in 2021, when California’s minimum wage will be $13 per hour. However, due to loopholes in the initiative, researchers estimated that the minimum wage provision evened out to just $5.64 per hour. This wage is far lower than the state minimum wage of $12.00, and the $15.00–$16.00 per hour minimum of many California cities (including Los Angeles, San Francisco, Malibu, Berkeley, and Santa Rosa). As the UC Berkeley Labor Center observed, “Harry Truman was president the last time the inflation-adjusted value of the minimum wage was that low.” The main reason for this low hourly wage is that drivers are only paid for “engaged time,” not time they spend waiting to pick up rides, driving to passengers, or for other tasks like getting gas, performing car maintenance, or gathering supplies like masks and hand sanitizer (which drivers also must pay for out of their own pocket). Employees, on the other hand, must be paid for all the time they spend working, and reimbursed for work-related expenses.

The measure also claimed to give independent contractors benefits, but those also turned out to be far below what people classified as employees receive. Prop. 22 requires that companies give a “health care subsidy” to people working fifteen hours of “engaged time” per week. As noted above, the “engaged time” metric is troublesome for gig workers because it discounts much of the time they spend actually working.

Tech companies’ clever and pervasive marketing campaign meant that people may not have known exactly what they were voting for. For example, they pitched the health care subsidy as a “portable benefits package.” Companies emphasized Prop. 22’s guarantee that workers would be paid 120% of the state minimum wage, without explaining how that number would actually be calculated. Labor rights organizations tried to explain how Prop. 22 would be detrimental to workers, but they could not compete with the tech companies’ advertising budgets.

With the passage of Prop. 22, we can expect a larger trend toward entrenchment of gig work as its own legal category, and a lack of labor protections and benefits for people working on app-based platforms. Tech companies are planning on launching nationwide ad campaigns in support of similar measures in other states. Uber Canada has recently proposed changes similar to those implemented by Prop. 22 to Canadian labor laws as well, showing that this trend is not limited to California or even to the United States.

Employment Law Blog

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