What Proposition 22's defeat would mean for Uber and Lyft — and drivers
One way or another, the business of summoning a ride from your phone is likely to look different in California after Nov. 3.
The future of gig work could hinge on the success or failure of Proposition 22, called the App-Based Drivers as Contractors and Labor Policies Initiative. Uber, Lyft and other companies bankrolling the initiative say it would improve workers' quality of life, providing new benefits while preserving their autonomy. If passed, the measure would cement gig workers' status as independent contractors, dealing a huge blow to a labor movement striving to bolster protections for workers at the margins.
Gig companies' business models rely on hiring large numbers of workers cheaply as independent contractors to provide rides, deliver meals and groceries and perform other services. Assembly Bill 5, a state law passed in 2019, aimed to expand protections to these workers, requiring gig companies to reclassify them as employees.
Proposition 22 represents the companies' efforts to battle that law and the obligations that come with it.
Uber, Lyft, DoorDash, Instacart and Postmates (which was recently acquired by Uber) have jointly poured close to $200 million into the "yes" campaign, flooding the airwaves and their own apps with ads and making the measure the costliest in U.S. history.
At the heart of it all is a vicious fight to shape the prospects of hundreds of thousands of drivers and delivery workers across the state.
Here's what you need to know.
What would happen if Proposition 22 passes?
For the companies sponsoring it, the short answer is: business as usual. For workers, it would bring some clarity, at a price.
The text of Proposition 22 assures drivers they would maintain flexibility as independent contractors. The measure offers some benefits similar to those conferred under AB 5, but significantly weaker.
Gig companies thus far have resisted compliance with AB 5, which went into effect Jan. 1. In early August, a judge ordered Uber and Lyft to convert their drivers to employees. At the 11th hour, the companies won a temporary stay of the order from a state appeals court, effectively pushing off the deadline until after voters have their say.
Uber and Lyft presented oral arguments before California's 1st District Court of Appeal on Tuesday. The court has 90 days to decide whether it will uphold the lower-court ruling. But Proposition 22, if passed, would override protections granted by AB 5.
The measure instead would grant 120% of the minimum wage (state or local, depending on where the driver is). However, this minimum narrowly applies to "engaged time," meaning the time a driver is on a trip with a passenger or en route to pick up a passenger. One study found drivers spend one-third of their time waiting between passengers or returning from trips, time that would not count toward the minimum wage.
Under Proposition 22, workers would also receive reimbursement of 30 cents for each "engaged" mile, but employee status would entitle drivers to 57.5 cents for each mile driven, in accordance with Internal Revenue Service guidance.
The proposition also includes a healthcare subsidy and occupational accident insurance to cover on-the-job injuries.
If gig companies complied with AB 5, workers would have access to the full slate of benefits, including overtime pay for time worked past 40 hours a week, paid sick leave, unemployment insurance and workers' compensation.
A recent report by UC Berkeley's Institute for Research on Labor and Employment found employee status would increase total driver compensation by about 30%.
What would the companies sponsoring Proposition 22 do if it fails?
Uber and Lyft have issued a series of contradictory threats about the consequences. Company representatives and the "yes" campaign have said drivers would probably lose flexibility in scheduling as well as the ability to work for multiple platforms. Confusingly, Uber and Lyft have also threatened to leave California altogether if Proposition 22 fails.
Uber Chief Executive Dara Khosrowshahi detailed what he called "the high cost" of making drivers employees in a recent blog post. He said that if Uber employed drivers, the company would be able to hire only 260,000 people full time, out of the nearly 1.2 million drivers in the U.S. before the COVID-19 pandemic.
Specifically in California, Uber projects the number of active drivers the platform could accommodate would fall by 75% if it was forced to treat drivers as employees. Increased labor costs would cause fares to rise 25% to 111%, the company says.
It's unlikely the companies will follow through on their threat to leave California, one of their biggest markets, said Michael Reich, a labor economist at UC Berkeley who has studied Proposition 22's effect on drivers extensively and whose work informed ride-hailing regulation adopted in New York. California accounts for about 16% of Lyft's business and 9% of Uber's global rides and Uber Eats gross bookings. However, the state represents a negligible fraction of adjusted earnings, Uber has said, according to Reuters.