Uber and Lyft eye other states after California ballot victory

Proposition 22 is rebuke of a recent California state labor law called AB5, which codified a three-part test for whether workers should be considered contractors or employees.

Lawmakers who supported AB5 hoped it would make gig economy companies like Uber and Lyft classify drivers as employees, which would require them to pay for things like benefits and unemployment insurance.

Uber and Lyft made changes before the law went into place to give drivers more flexibility, which they claimed would make them compliant. But California’s attorney general sued the companies, alleging they did not do enough to pass the new labor test. A trial judge granted a preliminary injunction that would have required companies to adhere to the employee classification, although it was not slated to take effect until after the election. He also called Uber’s logic for counting drivers’ work as outside the ordinary course of their business “a classic example of circular reasoning.”

That lawsuit is unlikely to matter now that Prop 22 has passed, allowing the companies to continue operating as they have.

Seth Berenzweig, founder and managing partner of the business law firm Berenzweig Leonard outside of Washington, said passage of Prop 22 is a huge win for businesses, especially those with significant operations in California.

“Candidly, some drivers will be disappointed with this. But on balance, it’s a reasonable modern compromise. And it will probably also serve as a new blueprint for other states,” Berenzweig said.

Berenzweig believes that one reason Prop 22 garnered widespread support was because “people like to be independent. They don’t like the government shoving an answer down their throat.” More important, he said, the companies were savvy in defining a middle ground.

The new base hourly compensation under Prop 22 is around $16.80, which is higher than the minimum pay under fair labor standards, provisions and regulations. That pay rate helped with the companies’ pitch.

Offering some payment to help maintain state insurance contributions was also smart, Berenzweig said. “It helped provide the appearance of some kind of middle ground rather than doing what the state did. The state just made an extreme decision and put everybody and everything in one lane,” he said.

Critics of the measure say it’s not that straightforward. Drivers for Uber and Lyft, for example, spend plenty of time waiting in their cars for another rider to pop up on their phone for a pickup or driving to a nearby stop without pay. Drivers like Nicole Moore, an activist with Rideshare Drivers United, say that waiting time should be considered work as well. Since benefits would be based on how many hours the companies considered them to have worked, they could end up short-changed there, too, according to Moore.

“When we’re able to get our message out, our message is effective,” Moore said.

Independent surveys seem to support the companies’ claims that drivers want to be independent. But Moore and labor law experts like University of Buffalo professor Erin Hatton say drivers don’t always get the full picture from gig companies.

“They’re selling them this dream of being your own boss, working whenever you want to, being in control of your work hours,” Hatton said. “But they’re doing all of these things to undercut the financial security that they might gain from this work.”

Uber did not provide comment for this article or on Proposition 22. A Lyft spokesperson pointed to a statement on the proposition highlighting the long fight to get the measure on the ballot and benefits it would provide, like an earnings guarantee.