Understanding Proposition 22

Author by: Sean O’Connell

BRB Bottomline: Proposition 22, a proposal that would classify gig-economy drivers as independent contractors with certain employee-like benefits, is the most hotly contested proposition of the year. 

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In recent years, California’s voters have been increasingly tasked with making important policy decisions with limited information on the November ballot. Propositions—a Gilded Age tool designed to give legislative power to voters rather than relying on potentially corrupt state legislators—dominate statewide political discussions and determine a significant portion of California’s legal code. 

This election cycle’s sampling of propositions is more technical than the hot topics of recent years—including legalizing gay marriage and marijuana possession. Two proposals, however, stand out as highly controversial and economically impactful: Propositions 15 and 22. Proposition 15 seeks to change the designation of commercial property taxation from assessed value to market value, which would increase state government revenue but could disincentivize economic investment.  However, Proposition 22, a proposal that would classify gig-economy drivers as independent contractors with certain employee-like benefits, is perhaps the most hotly contested proposition of the year. 

Supporters of the proposal claim Prop 22 steers a middle course between the state’s mandate that gig economy drivers be classified as employees and their current status as independent contractors. Opponents see the proposition as an attempt by big tech companies to avoid paying overtime, healthcare benefits, worker compensation, and social security programs to their drivers while reaping massive corporate profits. 

If passed, Prop 22 would reclassify gig drivers as neither contractors nor employees under state law. It would also create a payment floor of 120 percent of state minimum wage for drivers, implement healthcare subsidies based on state healthcare premiums, establish up to $1 million in accident insurance per driver, and cap work time to 12 hours per day.  Supporters have presented the proposal as providing gig workers with the best of both realities: a flexible work schedule with access to new forms of on-the-job social support. Opponents see it as a half-hearted attempt to keep independent contractors from receiving equitable rewards for their work and a fully developed safety net.

The proposition was filed in August of 2019 in response to the State Legislature’s passage of Assembly Bill (AB) 5 earlier that month. AB5 sought to resolve the “misclassification of workers as independent contractors” by requiring companies with independent contractors to shift to an employee model unless exempted under the “ABC Test:” a relatively narrow definition of independent contractors that placed workers in the gig economy squarely under the employee categorization. The bill was seen as a continuation of the California Supreme Court’s 2018 decision in Dynamex Operations v. Superior Court to switch from the “Borello Test” that identifies independent contractors towards a presumption that all California workers are employees unless proven otherwise. 

Unsurprisingly, the passage of Assembly Bill 5 created opposition from a coalition of three major gig companies headquartered in California whose business models rely on independent contract drivers: Uber, Lyft, and Doordash. Lyft spokesman Adrain Durbin responded to the bill’s passage: “Today, our state’s political leadership missed an important opportunity to support the overwhelming majority of ride-share drivers who want a thoughtful solution that balances flexibility with an earnings standard and benefits.” 

While gig companies petitioned to amend the bill to make app-based drivers a special category between employees and independent contractors, the lobby failed, and they turned to fighting AB5’s implementation in court. In August of this year, an appeals court granted both Uber and Lyft temporary stays on adherence to Assembly Bill 5 until after November, likely in response to threats that both companies would temporarily shut down statewide ride services in protest.

App-based transportation companies have significant economic incentive to fight the bill—some corporate analysts estimate these businesses could face cost increases of between 20 to 30 percent if required to claim all independent contract drivers as employees.  Uber and Lyft are already also facing massive revenue losses as a result of the pandemic; ridership for both companies has declined by almost 75 percent  from 2019 levels, and Uber registered $1.8 billion in second quarter losses earlier this year. Uber also stated it could be forced to cut 76 percent of its drivers and reduce servable routes in California if Assembly Bill 5 were implemented in its current form.  

To preempt this loss, Uber, Doordash, and Lyft have poured money into supporting Proposition 22. Much blood has been spent in anticipation of the vote: $184.3 million had been contributed in favor of Prop 22 by September 23, including $50 million from Uber, $48 million from Lyft, and $47 million from DoorDash. This makes Yes on Proposition 22 the most expensive proposition campaign in state history. By contrast, opponents of Prop 22 have contributed $10.7 million in campaign funding but have worked hard to garner significant political and labor interest support. 

Uber and its sister companies have simultaneously painted Prop 22 as a solution to a self-recognized problem with their independent contractor system and a thinly laced threat against the potential fallout of losing ride services in much of California. As Uber CEO Dara Khosrowshahi stated in a New York Times Op-Ed, “Uber is ready, right now, to pay more to give drivers new benefits and protections.” Supporters  of the proposal include the California Chamber of Commerce, InstaCart, the California NAACP, and, notably, the Republican presidential ticket.

Defenders of Assembly Bill 5 and the majority of elected Californian Democrats and labor advocates stand in stark opposition to Proposition 22. Notable opponents include the Democratic presidential ticket, Senator Elizabeth Warren, the California Teachers Association, Transport Workers Union of America, and California Labor Federation. Author of AB5 Assembly Member Lorena Gonzalez summarized their counterargument: “These billion-dollar corporations still refuse to offer their workers what every other employee in California is entitled to: earning the minimum wage for all hours worked, social security, normal reimbursements for their costs, overtime pay, and the right to organize.”

Prop 22’s lack of fully-funded healthcare programming for all gig workers as well social security benefits provides opponents legitimate grounds for contesting the proposal. State Attorney General Xavier Becerra defended implementing Assembly Bill 5 on the grounds that “Our state and workers shouldn’t have to foot the bill when big businesses try to skip out on their responsibilities.” However, even gig drivers are finding it difficult to take sides. Some, like retiree Jim Pryatt, are voting Yes on Prop 22 because. “If the flexibility of being an independent contractor goes away and I don’t have that flexibility, then I’m out.” 

For others, however, relying on driving as an economic lifeline has meant low wages, no benefits, and a limited safety net. Mekela Edwards relied on Uber as her main source of income until the COVID-19 pandemic forced her out of work. Her independent contractor status made collecting unemployment through the state extremely difficult—a reality that thousands of gig workers faced while also providing vital transportation services without hazard pay, cleaning supplies, or compensation during California’s pandemic response. “The thing is they don’t follow the law, they try to offer you things to prove you are an independent contractor,” she said. A study by the UC Berkeley Labor center found that if Uber and Lyft had treated workers like employees for the last six years, they would have owed $413 million to the state’s unemployment fund.

With election day approaching, gig companies and drivers alike are impatiently waiting for ballot results. In the wake of coronavirus, many opponents of Prop 22 fear restrictions on businesses already damaged by revenue loss will be unpopular with the public, as will the prospect of losing easy and cheap ridership options. Uber, Lyft, and their colleagues are likewise afraid that the pandemic laid bare the necessity of gig drivers despite their limited corporate support and poor working conditions. The results will likely change how California defines labor in the future and decide whether the growth of tech service employers will also mean the increased decentralization of work culture across America.