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App-based drivers from Uber and Lyft protest in a caravan in front of City Hall in Los Angeles on October 22, 2020 where elected leaders hold a conference urging voters to reject on the November 3 election, Proposition 22, that would classify app-based drivers as independent contractors and not employees or agents. (Photo by FREDERIC J. BROWN/AFP via Getty Images)

App-based drivers from Uber and Lyft protest in a caravan in front of City Hall in Los Angeles on October 22, 2020 where elected leaders hold a conference urging voters to reject on the November 3 election, Proposition 22, that would classify app-based drivers as independent contractors and not employees or agents. (Photo by FREDERIC J. BROWN/AFP via Getty Images)

The Passage of California’s Proposition 22 Would Give Digital Platform Companies a Free Pass to Misclassify Their Workers

Californians must require that companies follow the law and properly classify their workers. No company should be able to buy its way out of treating workers fairly.

On November 3, Californian voters will decide the fate of the Protect App-Based Drivers and Services Act, more commonly known as Proposition 22. This ballot measure would exempt “gig” or “digital platform” workers from Assembly Bill (AB) 5, a recently enacted law aimed at combatting the misclassification of workers. Instead of complying with the law, digital platform companies—namely Uber, Lyft, DoorDash, Postmates, and Instacart—have contributed over $184 million to ensure the passage of Proposition 22.

How a worker is classified has serious implications and high costs for workers. Most federal and state labor and employment protections are granted to employees only, not independent contractors. This includes basic employment protections such as a minimum wage, overtime pay, and access to unemployment insurance (as shown in Table 1.)

State and federal governments also lose when workers are misclassified. Companies that misclassify workers avoid paying their fair share of Social Security, Medicare, and unemployment insurance taxes and avoid providing state workers’ compensation insurance. The state of California estimates that the annual state tax revenue loss due to misclassification is as high as $7 billion.

California’s AB5 ensures that workers who perform core work under company control have access to basic labor and employment protections and benefits denied to independent contractors. Further, AB5 makes it more difficult for companies to avoid paying their fair share of Social Security, Medicare, and unemployment insurance taxes and avoid providing state workers’ compensation insurance. A study by UC Berkeley Labor Center found that if Uber and Lyft had treated workers as employees, they would have paid $413 million into California’s Unemployment Insurance Fund between 2014 and 2019. However, instead of paying their fair share, digital platform companies have backed Proposition 22 to deny gig workers the most basic labor and employment protections.

In exchange for exempting gig workers from AB5, Proposition 22 includes an earnings floor for drivers (set at 120% of the minimum wage), health subsidies consistent with employer contributions under the Affordable Care Act for drivers who work 15 hours or more per week, and auto insurance coverage. While the Proposition 22 would appear to provide gig workers with some access to benefits and a meaningful wage floor, it denies these workers coverage under the most basic employment protections (as shown in Table 2.) Moreover, a study by the UC Berkeley Labor Center finds that because of multiple loopholes in Proposition 22, it will leave gig drivers with a pay guarantee that is equivalent of a wage of $5.64 per hour, far less than the $15.60 minimum wage the initiative claims drivers will receive ($15.60 is 120% of the current California minimum wage of $13). In short, Proposition 22 is nothing more than a vehicle for digital platform companies to avoid meaningful responsibility to its workers via a law that invents arbitrary standards for gig workers.

The passage of AB5 helped to ensure that several million workers who have been wrongly misclassified as independent contracts in California receive the protections and benefits they are entitled under the law. These protections are especially important during the COVID-19 pandemic. However, instead of complying with the law, digital platform companies have financed the most expensive ballot initiative in California’s political history while inventing their own meager labor standards with insufficient enforcement. Californians must require that companies follow the law and properly classify their workers. No company should be able to buy its way out of treating workers fairly.


© 2021 Economic Policy Institute

Margaret Poydock

Margaret Poydock is the policy associate at the Economic Policy Institute. In her role, she assists the policy team in managing EPI’s legislative and policy initiatives to build a more just economy. Previously, Poydock was EPI’s communications assistant. In that position, she provided support for the media relations, publications, and web departments.

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