Prop 22 Explained: What this means for the Gig Economy’s future

It’s certainly been quite a year for California. Aside from wildfires, a global pandemic, and the resulting mass exodus from the state’s urban centers, a major bone of contention for businesses that rely on gig workers has been California’s AB-5 law. 

But what exactly is AB-5, and what are its implications?

California Assembly Bill 5 (AB-5) is a California law that went into effect January 1, 2020 that “…requires companies that hire independent contractors to reclassify them as employees, with a few exceptions,” according to Investopedia.

The main reason this law has been spotlighted is because three major employers of gig-workers — Uber, Lyft, and DoorDash — have resisted enacting the mandates of AB-5 since it was passed. 

However, these companies have been reprimanded regarding their lack of compliance to AB-5, and “…on Aug. 10, 2020, California Superior Court Judge Ethan Schulman ordered the companies to reclassify their contract drivers as employees with the same protections and benefits as their other staffers,” reports Investopedia’s Rebecca Lake

This means these companies would become responsible for providing the same benefits traditional employees are entitled to, including workers’ compensation, unemployment insurance, family leave, and more.

YES on Prop 22	NO on Prop 22

But there’s a plot twist. On September 4, 2020, an additional law was passed that created exceptions for numerous types of professional gig workers, stating they’d be exempt from the mandates of the AB5 ruling, including (but not limited to):

  • Insurance agents
  • Certain health care professionals
  • Securities broker-dealers 
  • Investment advisers
  • Certain types of salespeople 
  • Real estate agents
  • Commercial fishermen
  • Barbers and cosmetologists
  • Freelance writers and designers

While this approach is meant to level the playing field on a vocation-by-vocation basis, for gig-workers in California, it presents the potential for hurdles down the road. 

First, this law is about to set a precedent that would extend employee classification to gig workers employed by companies like Uber, Lyft, DoorDash and more, which would be virtually impossible to enact in a single month. Plus, it would be prohibitively expensive and disrupt the operations of these companies — and the livelihoods of the tens of thousands of people who work for them.

Second, there will inevitably be additional professions that crop up that necessarily need to be added to the list of exemptions, triggering the need for more pieces of legislation, and so on and so forth. 

In response to these issues, Uber and similar gig worker-supported businesses have put forth almost $200 million to support a state ballot measure known as Prop 22, which will be on California citizens’ November election ballots. 

Below is a bird’s-eye view of what Prop 22 would mean for gig workers, consumers, and gig worker-supported organizations if voters chose to vote “YES” or “NO” on the measure.

Prop 22 at a Glance

YES on Prop 22NO on Prop 22
Impacts on business operations
  • Expensive/time-consuming worker reclassification process
  • Could cost $200-$500 million/year to remain compliant with AB5
  • Business is responsible for worker productivity
  • Disruptive to companies dependent on gig workers
Benefits received by workers
  • Health insurance stipend
  • Companies must pay at least 120% of min wage for every hour spent driving
  • Insurance that covers illness/injuries on the job
Worker classificationContract workerTraditional employee
Pros for gig workers
  • More flexible hoursMore time off
  • Can work whenever/schedule not dictated by employer
  • Free to seek work elsewhere
  • New policies prohibiting workplace discrimination
  • Employers required to develop sexual harassment policies
Pros for consumers
  • Prices for services remain low
  • Greater access to rideshare/delivery services
  • Shorter wait time
  • Drivers required to undergo background checks/safety training
  • Driver quality could potentially improve
Pros for companies like Uber
  • Save the cost of overhead, benefits, severance, payroll tax, unemployment insurance, etc.
  • Higher profits
  • Don’t have to reimburse for fuel or vehicle expenses
Very few, if any — which is why these organizations are spending nearly $200 million to get Prop 22 on California ballots.

What Prop 22 Could Mean for Gig Workers

To fully appreciate the potential impacts of a “YES” or “NO” on Prop 22, it’s important to remember how and why we got here in the first place. While the U.S. has a long history of praising entrepreneurship and individuals with the grit to strike out on their own, protections for such individuals have not supported this narrative, and have fallen behind with the emergence of the gig economy. Consequently, the scales are tipped heavily in favor of traditional employees.

“We have created a labor market that funnels workers to a singular destination: the cubes and office parks that are the mandatory encumbrances of a full-time job,” writes Diane Mulcahy of the Harvard Business Review. “Those who deviate from this path, whether by choice or circumstance, are taxed additionally, then stripped of the benefits, rights, and protections that are only available to employees in traditional jobs with a single employer.

This is hardly the best or most beneficial way for an evolving labor market to operate, especially given the fact that the number of freelancers, independent contractors, and gig workers increased by 27% in the first quarter of 2020 alone, and is only expected to continue to grow.

However, where we need to think carefully and exercise caution is around the long-term impacts of AB-5.

While the intention of AB-5 is to fight for better compensation for workers, its Achilles heel is its attempt to implement an outdated, broad-strokes solution (traditional employee status) into a modern, nuanced issue where this may not be the best or most beneficial fix. 

 In the short term, this law could be considered a win for gig workers who were previously struggling to make ends meet. In the long term, some components of AB-5 could turn out to hurt California’s freelancers more than help them, as evidenced by backlash from freelancers themselves against AB-5. 

So, how could each scenario potentially unfold?

A“YES” on Prop 22 would would exempt companies like Uber, Lyft and DoorDash from reclassifying gig workers as employees, leaving the door open for individuals who earn money from these services to keep earning. It would also mean added protections and rules for drivers, passengers and companies, including sexual harassment training for drivers, driver safety classes, background checks for drivers, a health insurance stipend and more. It would also mean continued, necessary pushes for more and better protections for gig workers, including those who work for Uber, Lyft, DoorDash, and similar companies.

A “NO” on Prop 22 would mean that AB-5 stands, and companies that rely on certain types of gig workers (except for those already exempt under the current law) would have to reclassify those workers as traditional employees — and these employees would earn more money and be entitled to benefits. It would also mean the number of people working for these organizations would be drastically reduced, and the option for thousands of individuals to earn extra income would be eliminated. Up to 76% of Uber drivers alone would lose their jobs, leaving 158,000 Californians — many in disenfranchised populations — scrambling to find other ways to earn an income in the midst of a global pandemic if Prop 22 does not pass.

Consider the perspective offered by the NAACP, one of the largest proponents of Prop 22. In the eyes of the NAACP, gig work like driving for Uber, Lyft or DoorDash “…provides an accessible, low barrier-to-entry way to earn income for those who often find traditional employment challenging — communities of color, seniors, disabled veterans and those formerly incarcerated.”

And then there’s the impact that access to this type of gig work can make in the lives of immigrant workers. In a recent article, reporter Greg Ferenstein discussed the large population of Brazilian drivers in San Francisco. “Many escaped South America’s terrible economy to learn English and earn a better living in the global market,” writes Ferenstein.“It’s hard for them to pass interviews for employee work. While driving, they practice speaking with passengers with the hopes of one day returning and providing for their family with the kind of money that a bi-lingual speaker can make.”

And perhaps most importantly, not all gig worker drivers want to become traditional employees. Many enjoy the freedom and flexibility gig work provides. Regardless, the consequences of how Prop 22 shakes out will have long-lasting impacts on gig workers in California and beyond.  

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The Future of Gig Work in California and Beyond

Let’s be clear. The gig worker ecosystem as it is in the U.S. is anything but perfect, and the legislation and protections provided to this broad spectrum of workers need major overhauls. The truth is that some independent contractors need more protection than others. For instance, an Uber driver earning $20 an hour will need a much more robust safety net than a data scientist earning $350 an hour, so different structures should apply. 

Whether AB-5 is the right way to achieve this balance remains to be seen, and there’s no question Prop 22 could serve as a touchstone for the rest of the country. 

“Ultimately, the greatest impact of Prop 22, passage or not, may actually be felt outside of California,” writes Joel Feldman of Slate Law Group. “As the legal challenges over AB-5 show, labor laws were not prepared for the gig economy and current regulations did not anticipate the use of independent contractors in such a way and at such a large scale.”

With California acting as a trailblazer for what’s sure to be one of the most significant cases in a long string of such laws in states throughout the U.S., the decision will likely determine the outcome of how states decide to navigate these issues, both in the short and long term. 

Written by
Shahar Erez

Co-Founder & CEO @StokeTalent

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