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Prop 22 Thumbs-Up Keeps Uber/Lyft Workers As Contractors In California

On Tuesday (Nov. 3), California voters gave the nod to statewide ballot initiative Proposition 22, which allows app-based companies, such as ride-hailing firms and other gig economy firms, to classify workers as contractors rather than employees.

The vote was not even close, as 58 percent of voters approved of the measure.

In early trading, investors cheered the news. Uber shares were up roughly 13 percent pre-market, as noted by CNBC, and Lyft shares were up 16 percent.

The approval means that Lyft, Uber, and DoorDash can breathe a little easier and will not have to drastically alter their business models, as they said they’d have to do if Prop 22 had been voted down. It also means that Assembly Bill 5 (AB5), which was passed last year, is essentially dead in the water. That state labor law would have mandated that drivers for the ride-hailing companies working at least 15 hours a week be classified as employees.

Classifying those drivers as employees would have required Uber, Lyft and others to pay unemployment and healthcare benefits, but Prop 22 proposed a reported “third way” of classification that would give workers added benefits even while keeping them classified as contractors.

A study by the coalition Yes on 22 has estimated that workers could make between $25 to $27 an hour, where the state’s minimum wage beginning next year will be $14. In addition to the earnings guarantee, the benefits proposed by Prop 22 include 30 cents per mile compensation to help cover additional expenses incurred during a ride, including gasoline, maintenance and repairs. The health subsidies, based on the number of hours worked, equate to between 41 percent to 82 percent of a Covered California Bronze plan, according to the coalition.

As noted in this space, the added benefits tied to full-time employee classification would have layered hundreds of millions of dollars in extra operating costs into the firms’ operations annually.

Uber and Lyft had contended that the cost burden of compliance would have forced them to put drivers on a fixed schedule, make drastic cuts to their driver rosters and, perhaps, leave the state of California altogether. Uber CEO Dana Khosrowshahi estimated that in complying with reclassifying drivers as full-time workers, the company may have had to raise its prices by about 25 percent to as much as 100 percent.

Price hikes on that level would conceivably dampen demand. Lower demand would then put a dent in the earnings of gig workers where, as estimated by PYMNTS, 40 percent of them have lost at least $10,000 of income since the start of the pandemic. The gig economy certainly has become firmly entrenched, as roughly 53 million individuals have taken on side work or project work to generate income.

Now, according to The New York Times, Uber and other firms are likely to look to get federal legislation passed that would exempt them from similar worker classification laws extant in other states.

The precedent seems to be set, then, that Uber and Lyft – and other gig economy companies – can continue to classify their workers as independent contractors. Slate noted that any changes to the just-approved proposition would require a seven-eighths majority in the state legislature.

The vote was closely watched as a barometer of how platform companies may have to pivot and drastically alter their business models. Now, that pivot seems to have been sidestepped.

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