Q&A: What the Passage of Prop 22 in California Means for “Gig Economy” Employees

Featured: Andrew Smith, Kathryn Lee Colgan

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December 17, 2020 12:22pm

App-based transportation and delivery companies spent the months leading up to election day heavily advocating for and supporting Proposition 22, a ballot initiative that would keep app-based drivers – “gig employees” – classified as independent contractors rather than employees, as mandated by the passage of the controversial California Assembly Bill 5 (AB-5). The effort paid off, and the proposition received enough votes in favor to pass into California law.

As arguably one of the hot-button issues of the last year, we asked two experts from Tyson & Mendes’ Employment Litigation Practice Group, Los Angeles Managing Partner Andrew Smith and San Diego Partner Kathryn Lee-Colgan, to share their knowledge on Prop 22 and what its passage means – not only for the future of the gig economy in California, but for other states and industries as well. Read on below for their insights.

T&M: First, please explain the premise behind Prop 22. To which businesses does it apply?

Andrew Smith: Prop 22 creates a carve-out for drivers working for app-based transportation and delivery companies, making it possible for them to be classified as independent contractors and not employees of those companies, despite the enactment of AB-5. It also provides some basic protections which are otherwise afforded to employees under California labor law but does not go so far as to provide drivers all protections for employees.

T&M: Who was in support of the proposition? Did the drivers themselves advocate for it?

Kathryn Lee-Colgan: Given the passage rate of Prop 22, with over 9 million (58%) voting in favor, it appears most Californians and drivers were in favor of said resolution. Customers worried fewer drivers would mean higher costs for rides and food delivery services and fewer options for transportation. Drivers and other similar independent contractors seemed to be in favor of a more flexible work schedule, making their own hours and decisions as to when and how much to work. The additional incentives and protections offered by Prop 22 made it even more attractive for drivers to support and vote “yes.”

T&M: What protections are provided to drivers by Prop 22?

Smith: In addition to flexibility and independence, Prop 22 affords app-based drivers the following protections:

  • Payments for the difference between a worker’s net earnings, excluding tips, and a net earnings floor based on 120% of the minimum wage applied to a driver’s engaged time, plus 30 cents (adjusted for inflation after 2021) per engaged mile;
  • Limiting app-based drivers from working more than 12 hours during a 24-hour period, unless the driver has been logged off for an uninterrupted six hours;
  • For drivers who average at least 25 hours per week of engaged time during a calendar quarter, require companies to provide healthcare subsidies equal to 82% the average California Covered (CC) premium for each month;
  • For drivers who average 15-25 hours per week of engaged time during a calendar quarter, require companies to provide healthcare subsidies equal to 41% the average CC premium for each month;
  • Require companies to provide or make available occupational accident insurance to cover at least $1 million in medical expenses and lost income resulting from injuries suffered while a driver was online (defined as when the driver is using the app and can receive service requests) but not engaged in personal activities;
  • Require the occupational accident insurance to provide disability payments of 66% of a driver’s average weekly earnings during the previous four weeks before the injuries suffered (while the driver was online but not engaged in personal activities) for upwards of 104 weeks (about two years); and
  • Require companies to provide or make available accidental death insurance for the benefit of a driver’s spouse, children, or other dependents if the driver dies while using the app

TM: What type of protections are not provided to drivers due to being exempt?

Lee-Colgan: Prop 22 essentially overrules AB-5 in that it classifies drivers for app-based transportation and delivery companies as “independent contractors,” not “employees,” unless the company sets drivers’ hours, requires acceptance of specific ride and delivery requests, or restricts working for other companies. Now, as independent contractors, said individuals are not covered by various state employment laws – including minimum wage, overtime, paid sick leave, unemployment insurance, and workers’ compensation.

T&M: Where did pushback against the proposition come from?

Smith: The majority of the pushback to Prop 22 came from groups that claimed drivers are cheated out of protections they would otherwise have as employees, such as overtime, payment for “down time,” and other potential benefits.

T&M: What does Prop 22 mean for the future of “gig economy” workers and their employers?

Lee-Colgan: Prop 22 and any subsequent actions to clarify AB-5 provide some measure of certainty and predictability to employment relationships and will also allow genuine independent contractor relationships to exist. The passage of Prop 22 also signals the desire for companies to be able to decide how they want to run their business, including being able to allow workers to have flexible hours and convenience, if the job will allow for it.

T&M: What legal challenges or actions might businesses face as a result of Prop 22?

Lee-Colgan: Primarily, the passage of Prop 22 will no doubt make other states beyond California reluctant to consider legislation similar to AB-5, given the outcome of Prop 22’s vote. Within California, companies remain cautious to avoid violating AB-5 and be hit with large fines and/or potential legal action for doing so. For most, AB-5 is still quite confusing, and there is uncertainty as to what is and is not a violation.

T&M: What other types of industries could pursue a similar proposition strategy in California? 

Smith: Any other industry which can (a) identify legislation which provides carve-outs for particular groups of employees from either the entirety or part of the application of the legislation, and which can then (b) create an additional carve-out which benefits the industry.

The sheer size of the potential pool of workers who could be considered employees versus independent contractors prior to Prop 22’s enactment means the number of potential claims rendered unviable by that Prop-driven classification will almost certainly lead to other industries attempting this – if the potential savings warrant it.

Other industries with gig-based jobs which have not already been addressed by subsequent amendments to AB-5 (see our recent EPL update for the specifics) might try to get something like this on the ballot in the future, and with the right amount of funding, there is no limit to the number of proposition-created carve outs that could exist.

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