Prop 22: What's Next?

Proposition 22 (Prop 22) was a ballot initiative in California that passed in November 2020. Prop 22 was supported by large gig companies, such as Uber, Lyft and DoorDash. Over $200 million was spent by these companies in support of the campaign, making it the nation’s costliest ballot initiative campaign. The passage of Prop 22 allowed the gig companies to be exempt from Assembly Bill 5 (AB5) and enabled the companies to classify their workers as independent contractors rather than employees. 

However, numerous criticisms and lawsuits followed after the passage of Prop 22. Most notably, the Service Employees International Union (SEIU) and a group of rideshare drivers filed a petition in January 2021 to overturn the proposition. SEIU claimed that the proposition was unconstitutional.  The opposition continued to build up in the following months and on August 20, Superior Court Judge Frank Roesch ruled that Prop 22 is unconstitutional and unenforceable. The ruling is a big setback for gig companies such as Uber, Lyft and DoorDash who are claiming their workers as independent contractors rather than employees of the company.  

 

How is Prop 22 Unconstitutional? 

According to Roesch, there are two main parts of Prop 22 that violate the state Constitution. First, Roesch strongly believes that Prop 22 limits the power of the state Constitution to regulate worker’s compensation, which had been granted over a decade ago. Second, the constitution has a provision that states that the laws and initiatives introduced by a ballot measure must be limited to a single subject. Roesch claims that Prop 22 not only allows companies to classify workers as contractors but also has verbiage that prevents workers from unionizing, thereby violating the single subject provision.     

 

Why Do Gig Companies and Workers Care? 

The incentives for gig companies to strike down AB5 with the passage of Prop 22 are clear. Gig companies do not want to incur the costs of worker’s benefits, taxes that contribute to worker-compensation funds and unemployment insurance, among other costs that employers bear. The extra costs associated with the gig workers’ classification as employees will hurt the company’s bottom line. In extreme cases, it will make the business models not viable, force companies to go out of business and jobs will be lost. For gig companies that can bear the extra overhead of classifying workers as employees, the costs will be ultimately passed down to the end consumer. Consumers will spend less which in turn will impact the overall gig economy. Lastly, proponents of Prop 22 argue that the higher barriers to entry due to worker reclassification will severely stunt innovation in the gig economy. 

While the gig companies’ stance is clear, workers in the gig economy are somewhat divided on Prop 22. Workers that oppose Prop 22 are in favor of receiving the benefits that employees have in a company, such as minimum wage, health insurance benefits, vacation, sick leave and job protection. In contrast, workers that support Prop 22 prefer being classified as independent contractors because of the work hour flexibility and ease of entrance into the gig economy. If workers are classified as employees, the stricter work hours and job requirements would make gig jobs not feasible for many, especially those with multiple jobs. 

 

What’s Next? 

Uber, Lyft, DoorDash and other gig companies will appeal the ruling by the Superior Court Judge and the case will likely be brought to the California Superior Court. The appeal process will likely take several months to a year. There are legitimate arguments to both sides of the appeal so the outcome is far from being certain.