The Worst Of Both Worlds: The Implications Of Prop 22 For Workers In California And Beyond

Introduction

During the November 2020 election, California voters passed Proposition 22 (“Prop 22”) after gig companies like Uber and Lyft waged a multi-million dollar campaign encouraging voters to vote “yes.” Prop 22 creates a third category of app-based rideshare drivers and classifies them as neither employees nor independent contractors. This has created a dangerous dichotomy. Because these workers are not classified as employees, they are not eligible for state unemployment insurance or provided with affordable health insurance.[i] They are not protected by laws surrounding minimum wage, overtime pay, paid family leave, sick leave, retaliation, and collective bargaining.[ii] At the same time, because they are not classified as independent contractors, they may not be entitled to the same flexibility they had enjoyed previously—contrary to Uber and Lyft’s statements touting Prop 22 as the only way to maintain flexibility for drivers. Prop 22 creates a subgroup of independent contractors who can be treated like employees, without the benefits and rights employees enjoy—essentially, the worst of both worlds for rideshare drivers.

California workers are already beginning to witness the terrible effects of Prop 22, and unfortunately things can (and likely will) get much worse. This article will discuss the alarming preliminary consequences of Prop 22, ongoing developments, and troubling trends we can expect to see in the future.

Inaccessible And Inadequate So-Called “Benefits”

In an attempt to offset the rights Prop 22 stripped from rideshare drivers, proponents included three measures: a wage guarantee, $0.30 reimbursement per engaged mile, and a health care stipend. Each “benefit” is inferior to the benefits drivers would receive had Prop 22 not passed. Unsurprisingly, these benefits are also much less beneficial than suggested by gig companies.  

With respect to the wage guarantee, the UC Berkeley Labor Center estimates that the guarantee is only about $5.64 per hour due to loopholes in the initiative.[iii] They emphatically note that “Harry Truman was president the last time the inflation-adjusted value of the minimum wage was that low.” Months after Prop 22’s passage, we now know that this figure is more than an estimate—it’s the new reality for rideshare drivers in California. Drivers are reporting that their wages have decreased as their pay fluctuates.[iv] One driver stated that he now only makes about $5.00 an hour, while another said that sometimes he only makes $4.00 for the entire night.[v]

With respect to the reimbursement, the IRS estimates that the average cost of owning and operating a vehicle is $0.58-per-mile[vi], meaning reimbursement at $0.30-per-mile still puts drivers on the hook for additional costs. Moreover, the fact that drivers are only reimbursed per engaged mile means that they must still pay for mileage between rides or commuting, as well as vehicle maintenance. If that wasn’t bad enough, Uber and Lyft are also refusing to reimburse any mileage at all if they calculate that drivers make above a certain amount. For instance, Uber will not reimburse mileage if they calculate that drivers make more than $16.80 per hour.[vii] In actuality, disqualified drivers generally are not making more than $16.80 an hour–as mentioned previously, Uber and Lyft’s wage calculations do not take into account wait times or any other expenses drivers must pay.

The healthcare stipend is also riddled with loopholes. Not all drivers will receive a stipend—only drivers that work 39-40 hours a week will even qualify. Because premiums vary by age and region, some drivers will receive drastically lower stipend amounts than others. For example, younger drivers in southern California might only be eligible to receive a percentage of $1.[viii] Additionally, drivers must pay taxes on the benefit, lowering the effective stipend they receive. Finally, the stipend may not be enough to buy the lowest level of coverage in California, which requires a $7,000 dollar deductible before coverage kicks in.[ix]

Prop 22 And Forced Arbitration

To make matters worse, drivers may not even be able to access these meager benefits at all. Like all employee benefits, workers may be entitled to them on paper, but not always in practice. Many companies attempt to skirt their legal obligations to save money. Historically, the only bulwark against this corporate malfeasance has been the court system. Workers can sue their employers to vindicate their rights, receive the benefits they are entitled to, and deter companies from breaking the law in the future.

However, most gig workers are subject to forced arbitration clauses, which require workers to resolve disputes in private rather than in a public court.[x] Without access to the courts, it is much more difficult for workers to hold their employers accountable for breaking the law. Because arbitral proceedings are private, forced arbitration also shields employers from public accountability by preventing workers and the broader public from learning about unlawful employer activity.[xi] Unlike a court of law, private arbitration occurs in the absence of legal safeguards and other guarantees that ensure a fair process.[xii] Arbiters are also more likely to be biased against workers.[xiii] As a result, forced arbitration allows employers to evade their responsibilities under the law, and in this case, will allow companies to evade their responsibilities under Prop 22.[xiv]

While Instacart, Grubhub, and Uber-Postmates have had forced arbitration agreements in their contracts for years, DoorDash and Lyft only updated their employment contracts to include forced arbitration after Prop 22 passed.[xv] Organizations like Rideshare Drivers United are urging workers to opt out of these arbitration agreements, but many workers have not and may not able to do so.[xvi] This does not bode well. In the future, we will continue to see drivers struggle to access the paltry benefits Prop 22 provides.

Preliminary Consequences: Albertsons Delivery Drivers As A Case Study

Rideshare drivers are not the only workers who will be affected by Prop 22—drivers previously classified as employees now also find themselves in a precarious position. Although they previously enjoyed full rights and protections, Prop 22 incentivizes companies to fire employees and replace them with third party rideshare drivers. Californians are already witnessing this trend. Last month, Albertsons fired grocery delivery drivers who were classified as employees and replaced them with rideshare drivers.[xvii] This trend will continue as more companies decide to cut costs and liability rather than protecting and fairly compensating their workers. In other words, drivers that previously enjoyed the rights and protections guaranteed to employees will find themselves out of work and forced to take on contract jobs—essentially completing the same work, but with rights and protections now stripped away from them.

Costs Being Passed Onto Consumers

In addition to workers paying the price of Prop 22, consumers are paying the price as well—literally. Although Uber and Lyft claimed that they would be forced to increase fares if voters did not pass Prop 22, they are still increasing fares despite its passage. Uber and Lyft announced that riders in California would see price increases for rides and food deliveries to cover the costs of the benefits provided by Prop 22.[xviii] These fare changes have already gone into effect.

Ways That Companies Could (And Likely Will) Exercise Control Over Their Workers

Although companies like Uber and Lyft touted Prop 22 as the only way to maintain flexibility for drivers, Prop 22 actually allows companies to exercise more control over their workers than ever before. Under Prop 22, companies can classify their drivers as independent contractors as long as they don’t:

  • “Unilaterally” schedule workers for shifts, or require a minimum number of hours;
  • Deactivate drivers accounts for refusing any specific offer;
  • Restrict workers from working on other apps, except during deliveries; or
  • Restrict workers from working other jobs.

As long as companies abide by these bare minimums, they are free to exercise any other form of control over their workers.[xix] Possible means of control include:  

  • Requiring drivers to work in shifts rather than on-demand;
  • Deactivating or otherwise penalizing drivers for missing shifts;
  • Deactivating or penalizing drivers for failing to finish deliveries within a specific amount of time;
  • Capping the maximum number of hours a driver can work per week;
  • Deactivating drivers who do not consistently log in;
  • Requiring workers to accept a minimum number of jobs;
  • Assigning supervisors to monitor, control, and discipline workers;
  • Putting in place new hiring practices that make it more difficult for drivers to access app-based work;
  • Limiting geographic areas a driver can operate within;
  • Inserting contract terms that permit the company to deactivate drivers for any reason other than refusing an offer (e.g., bad reviews, false accusations of misconduct, parking violations, etc.)

Because of the increased costs associated with Prop 22, it’s very likely that companies will implement many of the restrictions listed above to cut costs even further. For example, because drivers only receive the healthcare subsidy for working a specific number of hours, companies have an incentive to cap their hours. Under Prop 22 they are completely permitted to do so.

Many voters (including drivers) voted yes on Prop 22 because they believed they were ensuring rideshare drivers could retain flexibility. Unfortunately, the opposite is true. We will continue to see companies control drivers and limit their flexibility, all while still depriving them of the rights and protections they are entitled to.

Looking Ahead In California: Legislative Challenges

One of the most pernicious effects of Prop 22 was buried in the fine print. Most voters were not even aware that Prop 22 requires a 7/8 supermajority in the California Legislature to amend any of its provisions.[xx] On top of the supermajority, any amendment must be “consistent with, and further the purpose of” Prop 22. These herculean and unprecedented requirements don’t just apply to state measures, but also local measures. In other words: any future efforts in California to advance gig worker’s rights and address issues related to pay, tips, scheduling, leave, and benefits will be effectively impossible to implement. This also means Prop 22 is functionally permanent, even as workers and other Californians begin to witness its adverse effects.

Looking Ahead On A National Scale: Legislation In Other States

Uber and Lyft CEOs have made it clear that they intend to advocate for laws like Prop 22 in other states.[xxi] Already, PACs in Illinois, New York, and New Jersey have initiated Prop 22-style campaigns, with other states likely to follow.[xxii] Moreover, states considering legislation like California’s AB 5 (to classify gig workers as employees) will likely be dissuaded after witnessing how Prop 22 dismantled AB 5 in California.

What Can Be Done?

Although the situation is bleak, there are some actions workers and workers’ rights groups are already taking. A group of rideshare drivers and the Service Employees International Union filed suit contending that Prop 22 is unconstitutional[xxiii], on the grounds that it:

  • Limits the Legislature’s ability to enforce a system of worker’s compensation and excludes rideshare drivers from that system;
  • Infringes on the Legislature’s constitutional authority to enact amendments and the judiciary’s authority to determine what constitutes an amendment;
  • Violates the “single-subject” rule in the California constitution that requires initiatives to only address a single subject.

As of this writing, this question has not yet been resolved by the courts. However, a California state court ruled that rideshare drivers were employees under AB 5, and on February 10, 2021 the California Supreme Court declined to review this ruling.[xxiv] This holding permits drivers to sue for backpay and benefits owed to them after AB 5 was implemented but before Prop 22 was passed. For instance, a California court held that 4,800 drivers could proceed in a class action lawsuit against Uber for back pay and benefits owed to them during that time period.[xxv]

Proponents of workers’ rights are also turning to possible federal preemption. If President Joe Biden enacted a federal law classifying gig workers as employees, that federal law would likely preempt Prop 22 and any other state law similar to it. The Biden administration has at least indicated some support for this idea–Joe Biden and Kamala Harris both opposed Prop 22,[xxvi] and Biden’s official campaign site includes a promise to create a federal version of California’s AB5.[xxvii] This law would implement the ABC test to determine whether to classify workers as contractors or employees.[xxviii] If the Biden administration could establish this kind of federal standard, gig workers across the nation could be classified as employees and receive the rights and protections they deserve.


[i]   Andrew Stettner, California Takes On the Gig Economy and the Epidemic of Worker Misclassification, The Century Foundation, https://tcf.org/content/commentary/california-takes-gig-economy-epidemic-worker-misclassification/?agreed=1.

[ii] Id.

[iii] Ken Jacobs and Michael Reich, The Uber/Lyft Initiative Guarantees Only $5.64 an Hour, UC Berkeley Labor Center (October 31 2019), https://laborcenter.berkeley.edu/the-uber-lyft-ballot-initiative-guarantees-only-5-64-an-hour-2.

[iv] Michael Sainato, I can’t keep doing this: gig workers say pay has fallen after California’s Prop 22, The Guardian (February 18, 2021), https://www.theguardian.com/us-news/2021/feb/18/uber-lyft-doordash-prop-22-drivers-california.

[v] Id.

[vi] Jacobs and Reich, supra note iii.

[vii] Sainato, supra note iv.

[viii] Health Access, Health Access Analysis: Vote No on Prop 22, https://health-access.org/wp-content/uploads/2020/10/Health-Access-Analysis-VOTE-NO-ON-PROP-22.pdf.

[ix] Id.

[x] Elizabeth C. Tippett and Bridget Schaaff, How Concepcion and Italian Colors Affected Terms of Service Contracts in the Gig Economy, 170 Rutgers U. L. Rev. 459 (2018).

[xi] For more information, see Workers Beware: Forced Arbitration Can Happen To You, The Employee Rights Advocacy Institute for Law & Policy, http://employeerightsadvocacy.org/our-work/ending-forced-arbitration-in-the-workplace/workersbeware; Taking “Forced” Out of Arbitration, The Employee Rights Advocacy Institute for Law & Policy, http://employeerightsadvocacy.org/wp-content/uploads/2016/06/Taking-Forced-Out-Of-Arbitration_English_Final.pdf; Justice Denied: How The U.S. Supreme Court Forced America’s Workers Into Arbitration, The Employee Rights Advocacy Institute for Law & Policy, http://employeerightsadvocacy.org/our-work/ending-forced-arbitration-in-the-workplace/justice-denied/.

[xii] Id.

[xiii] Id.

[xiv] Edward Ongweso Jr., Gig Workers Must Opt Out of Arbitration to Enforce Prop 22 Benefits, Rights Group Says, Vice (January 11, 2021),https://www.vice.com/en/article/wx84q9/gig-workers-must-opt-out-of-arbitration-to-enforce-prop-22-benefits-rights-group-says.

[xv] Id.

[xvi] Id.

[xvii] Mike Dickerson, Vons, Pavilions to Fire “Essential Workers,” Replace Drivers with Independent Contractors, The Knock LA (January 4, 2021),https://knock-la.com/vons-fires-delivery-drivers-prop-22-e899ee24ffd0.

[xviii] Alexander Sammon, Prop 22 Is Here, and It’s Already Worse Than Expected, The American Prospect (January 15, 2021),https://prospect.org/labor/prop-22-is-here-already-worse-than-expected-california-gig-workers/

[xix] Reading Between the Lines: How Prop 22 would limit flexibility for independent contractors, Working Washington, https://payup.wtf/prop-22-flexibility.

[xx] Official Text of Prop 22, at page 8, available at: https://vig.cdn.sos.ca.gov/2020/general/pdf/topl-prop22.pdf.

[xxi] Sammon, supra note xviii.

[xxii] Id.

[xxiii] Erin Mulvaney, Gig Workers Revive Proposition 22 Challenge in California, Bloomberg (February 11, 2021), https://news.bloomberglaw.com/daily-labor-report/uber-lyft-drivers-revive-proposition-22-challenge-in-california.

[xxiv] Carolyn Said, California Supreme Court rejects Uber, Lyft challenge to gig-work order, San Francisco Chronile (February 11, 2021), https://www.sfchronicle.com/business/article/California-Supreme-Court-rejects-Uber-Lyft-15941181.php.

[xxv] Tyler Sonnemaker, California Uber drivers score a win after court partially allows class-action lawsuit for pre-Prop 22 payments, Business Insider (January 27, 2021),https://www.businessinsider.com/uber-class-action-lawsuit-california-prop-22-ab5-driver-pay-2021-1.

[xxvi] Kari Paul, Prop 22: why Uber’s victory in California could harm gig workers nationwide, The Guardian (November 11, 2020),https://www.theguardian.com/us-news/2020/nov/11/california-proposition-22-uber-lyft-doordash-labor-laws.

[xxvii] The Biden Plan for Strengthening Worker Organizing, Collective Bargaining, and Unions,  https://joebiden.com/empowerworkers/.

[xxviii] Id.

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