Breeze Logo

Prop 22: The controversial California initiative, explained

Read time
7 mins

It may be the most closely watched race on Election Day that doesn’t involve presidential candidates or members of Congress.

It’s certainly been costly to fund, with nearly $200 million spent on advertising.

The reason behind the interest in California Proposition 22 is that it will have a profound impact on gig workers, gig companies, and the gig economy as a whole.

In fact, the term ‘gig work’ may be a thing of the past — at least in California — if Proposition 22 is defeated on November 3.

What is Prop 22 in California?

The full name of Proposition 22 is the App-Based Drivers as Contractors and Labor Policies Initiative. The initiative aims to classify the drivers who work for Uber, Lyft, Instacart, DoorDash, and similar companies as independent contractors in California, as they are in the rest of the country.

This is currently not the case in California, as of the beginning of 2020. A law passed by the state’s legislature, known as Assembly Bill 5 (AB 5), required gig companies to designate their drivers as employees. Specifically, AB 5 stated that for workers to be classified as independent contractors, they had to meet all three of the following requirements:

  • Workers are free from the company’s control
  • Workers perform work that isn’t central to the company’s business
  • Workers have an independent business in that industry

The state’s court system ruled the rideshare and delivery service drivers do not meet these requirements and should be considered employees. As employees, gig company drivers are entitled to overtime pay, paid sick leave, unemployment insurance, and workers’ compensation.

However, the companies fighting AB 5 and backing Proposition 22 have resisted compliance with AB 5. They even won a temporary stay from a state appeals court until after the Proposition 22 vote has been decided.

What a vote ‘yes’ on Prop 22 means

Approval of Proposition 22 means the gig companies can operate in California as they do in the rest of the country. Customers who want a ride or food delivered can use an app, and an independent contractor provides the service. The gig company takes a cut of the transaction.

The backers of Proposition 22 attempted to give some benefits to drivers not normally offered to independent contractors. If the law passes, drivers for app-based services would receive:

  • Occupational accident insurance to cover on-the-job injuries.
  • Stipends to be used toward private health insurance for drivers who work 15 hours a week. A larger stipend would be offered to drivers who work 25 hours or more.
  • Guaranteed minimum pay equal to 120 percent of the state’s minimum wage based on the hours spent in transit. Based on a $13 state minimum wage, a driver who spends an hour picking up and ushering a passenger to their destination should earn at least $15.60.
  • Reimbursement of 30 cents for each “engaged” mile. By comparison, employees receive 57.5 cents for each mile driven, in accordance with Internal Revenue Service guidance.

The text of the proposed law said it will benefit: “Californians choosing to work as independent contractors in the modern economy using app-based rideshare and delivery platforms to transport passengers and deliver food, groceries, and other goods as a means of earning an income while maintaining the flexibility to decide when, where, and how they work.”

What a vote 'no' on Prop 22 means

If voters reject Proposition 22, drivers for Uber, Lyft, and similar services will be classified as employees of those companies.

On the one hand, they will likely gain access to the same employee benefits as any other worker at the company. They will also be paid for the time they spend waiting between passengers or returning from trips. One study found that this non-passenger time can account for a third of the time drivers spend with these services.

On the other hand, drivers may lose the flexibility this type of work offers. As employees, drivers would have to work set schedules, no different than other types of part-time or full-time work. This could be a detriment to drivers who choose this work because they want to work an hour or two when it’s convenient for them.

The rejection of the proposition could have repercussions on other industries in which workers contract their services on a project basis rather than working as employees. In fact, several freelance journalists, as well as independent truck drivers and musicians, said AB 5 had a detrimental effect on their business.

Upwork is one of many popular websites that connect freelance writers, artists, and web developers with companies that need those services. Upwork makes its money by charging a percentage, basically a commission, on the agreed-upon payment between the hiring company and the talent they employ. Upwork doesn’t employ any of the freelancers that use its site.

It could be argued that Uber is no different than Upwork. Uber is connecting people who need a ride with those who can provide one.

Uber has also claimed that it would have to greatly reduce the number of available drivers and increase fares in California between 25 percent to 111 percent.

There may also be national implications. Both Joe Biden and Kamala Harris, the Democrat nominees for president and vice president, have called for California voters to reject Proposition 22.

The Washington Post further explains the potential impact beyond California: “California, home of Silicon Valley and the world’s fifth-largest economy overall, has a history of driving national policy when it comes to instituting regulations and reining in large corporations. Experts say if California’s effort to make drivers employees is successful, it won’t be long before other states and jurisdictions follow suit. And the gig companies probably would take similarly aggressive measures against them, seeking to codify drivers’ contract status.”

Voters, not legislators, will decide

Appearing on the ballot during a presidential election will mean more of the state’s voters will weigh in on the issue compared with the turnout that occurs during an off-year election. Beyond the impact on the companies and their drivers, the Proposition 22 vote will serve as a litmus test for how the general public feels about the gig economy. It may also ignite greater interest in the discussion surrounding the portability of benefits, such as health, critical illness, life, and disability insurance.

California leans politically left, especially in the urban areas that rely most on rideshare and food delivery services. Both the state’s U.S. senators are Democrats. Of the state’s 52 current members of the House of Representatives, 45 represent the Democrat Party. And the Democrat nominee for President of the United States has won the state’s electoral votes in the last seven elections; Hillary Clinton earned nearly 62 percent of the state’s popular vote in 2016.

Voters on the political left typically support greater protections for workers. That would seem to favor a defeat of Proposition 22.

On the other hand, people have come to rely on rideshare and grocery delivery services, especially during the COVID-19 pandemic. And it’s become a popular supplemental source of income.

As of today, all that's known is a decision will arrive soon — and it may be controversial.

Joel Palmer is a freelance writer and personal finance expert who focuses on the mortgage, insurance, financial services, and technology industries. He spent the first 10 years of his career as a business and financial reporter.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

— Published October 23, 2020
Related Articles

Get started online — anytime, anywhere.

(Seriously, it's a breeze.)