As we have all known for several years now the gig economy is not only beneficial to a country's economy but allows flexibility for those workers.  However, gig economy is still developing, both in the US and the UK, with many legal challenges from the workers with regards to what they believe are fair working rights for them.

Following on from our recent gig economy article, lets focus more on the recent Proposition 22 which was passed in California on the 3rd November 2020 securing 58% of the vote. It is the most expensive ballot-measure campaign yet, with its sponsors, namely Uber, Lyft, DoorDash, Instacart and Postmates (which is also owned by Uber) spending in excess of $200 million as they defended their position with gig workers.  This bill is currently only applicable to the state of California but is expected to be adopted in other states across the US.

In this article we will take a look at what led up to Proposition 22, explain what it means and what might be on the cards for the US gig economy in the future.

The Background

Proposition 22 was a reaction to the Assembly Bill 5 ('AB 5'), which came into effect on the 1st January 2020. AB 5 brought in the 'ABC' test, which was already in use in other states, and which is used to determine whether workers are employees, making them entitled to rights and benefits.

In essence, the ABC test sets out three requirements which must be satisfied by an employer in order to prove that their worker is in effect an independent contractor:

  1. The company does not control the services provided by the worker,
  2. The service provided is outside of the company's core business, e.g. a cleaner in a technology company,
  3. That the worker is an independent professional and provides their services to other companies.

Because gig workers are instrumental to certain business models, like that of Uber, and because they are more cost effective as the companies who use them do not have to pay employee benefits (such as minimum wage and overtime), sick leave and insurances, many businesses supported the passing of Proposition 22.

What is Proposition 22?

Proposition 22 will allow companies like Uber and Lyft to treat their drivers as independent contractors while still providing them with some benefits. This has created what Dara Khosrowshahi, Uber's CEO, has called an “IC+ model”, which is short for independent contractor plus some benefits.

However, Proposition 22 cannot be used by any company. It will only apply to 'network companies', which is defined as a business that is either a delivery network company ('DNC') or a transportation network company ('TNC') both of which operate in California. The legislation provides further detailed explanations of what constitutes a DNC and TNC businesses entity respectively.

Furthermore, a network company can only classify their workers as independent contractors if it does not:

  1. Unilaterally prescribe specific dates, times of day, or a minimum number of hours during which the app-based driver must be logged into the company's online-enabled app or platform;
  2. Require the app-based driver to accept any specific rideshare service or delivery service request as a condition of maintaining access to the network company's online-enabled application or platform;
  3. Restrict the driver from performing rideshare services or delivery services through other network companies except during engaged time;
  4. Restrict the app-based driver from working in any other lawful occupation or business.

While it will be easier for network companies to classify their workers as contractors, this does not leave the contractors without any rights. The new law requires a network company to provide benefits and protections like a healthcare subsidy, a minimum wage earning guarantee (which has a corresponding formula), occupational accident insurance (to at least partially cover on the job injuries) and some protection against discrimination and sexual harassment. There are also now more obligations on the companies to carry out background checks and provide safety training to the contractors.

As the measure did not specify an effective date, it will take effect on the fifth day after the Secretary of State certifies the election results. Results must be certified by the 11th December 2020 so Proposition 22 should come into effect by mid-December 2020.

It is also worth noting that unless the app-based company meets the requirements established by Proposition 22, its workers remain subject to applicable California law, namely AB 5 and the ABC test.

Effect on the Gig Economy

Even though Proposition 22 is a big win for companies who use gig workers, it is of limited impact. First of all, the application of the law itself is limited to network companies, which excludes a large proportion of those businesses who do utilise gig workers.

On one hand, after the win, Uber's CEO indicated that Uber will be advocating for “laws like Prop 22” in other states, where Uber is already embroiled in legal battles. The Trump administration had also been looking to implement some pro-business employment laws.

However, while the Trump administration seemed to be in favour of Proposition 22, Biden and Vice President Kamala Harris, are not. In fact, Biden advocated against Proposition 22 and has endorsed other laws protecting workers, such as the Protecting the Right to Organize Act. There has been some speculation that Biden and his administration will bring in a law at federal level (based on California's AB 5 and the ABC test) which will overrule Proposition 22.

What is also not clear with Proposition 22 is whether the new law will be retrospective. If it is not,

this means there is room for legal dispute as to whether some drivers will be entitled to compensation retrospectively for the period prior to the effective date of the new law. This would mean that lawsuits for companies which use gig workers may keep coming for several more years. This will make it particularly difficult if similar legislation is passed in other states, each with varying statutes of limitations, which will only add to the confusion and costs.

We will have to wait and see what happens once Proposition 22 comes into effect and whether legislation is passed at a federal level to counteract it.  It will also be interesting to see if these changes in the US have any further effect on the gig economy in the UK especially as the Taylor Review which would have changed the rights of gig workers, seems to have stalled.