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What’s at stake for Uber and Lyft in California’s most expensive ballot race

What's at stake for Uber and Lyft in California's most expensive ballot race

When Steve Gregg first started driving for Uber (UBER) and Lyft (LYFT) three years ago, he considered it a temporary gig. The 52-year-old was coming off of disability leave, after he suffered a neck injury working for a city park maintenance department in the San Francisco Bay Area.

“When I got into it I thought it would just be transitional. I was curious about the technology. I thought I would just go back into my career, but I fell in love with it,” Gregg said. “I just completely fell in love with the human race doing this. It was a journey for me every day.”

Yet, 16,000 rides later, Gregg is campaigning against the ride-hailing companies, mobilizing voters against California’s Proposition 22 as an organizer for Gig Workers Rising. The measure would classify app-based transportation and delivery drivers as independent contractors, exempting companies from Assembly Bill 5, a California law passed last fall that forces certain companies to reclassify workers as employees, thereby granting them greater legal protections.

Almost entirely funded by gig-economy giants like Uber, Lyft, Instacart, and DoorDash, the campaign in support of Proposition 22 has collectively spent more than $200 million, making it the most expensive ballot race in California. Opponents of the measure have spent around $14 million to defeat it.

“I’ve watched these companies turn a really good economy into an exploitative economy,” Gregg said. “I’m just tired of watching billionaires and corporations exploiting people and that’s exactly what they’re doing. Now they’re just trying to make it legal.”

A last-ditch effort to escape Assembly Bill 5

The ballot measure is among the last-ditch scenarios that would allow the companies to keep their workers classified as independent contractors. A California appellate court affirmed a lower court’s ruling last month mandating that the workers be reclassified as employees based on state law Assembly Bill 5 that became effective in January.

A rideshare driver holds up a sign supporting a no vote on Prop 22 in Oakland, California on October 9, 2020. - Ahead of a referendum that could upend the whole gig economy, Uber driver Karim Benkanoun says his relationship with the rideshare giant must stop being a one-way street. "If youre a driver with Uber or Lyft, you're nothing," said Benkanoun as he speaks of how he will vote in California's Proposition 22 referendum. (Photo by JOSH EDELSON / AFP) (Photo by JOSH EDELSON/AFP via Getty Images)
A rideshare driver holds up a sign supporting a no vote on Prop 22 in Oakland, California on October 9, 2020. (Photo by JOSH EDELSON / AFP) (Photo by JOSH EDELSON/AFP via Getty Images)

Under AB5, the app-based transportation and delivery drivers would gain entitlements that employers are required to offer their employees, including overtime pay, minimum wage, paid sick leave, and unemployment insurance.

But Uber and Lyft have argued that their drivers enjoy the independence of working as independent contractors, including choosing their own hours, as the Los Angeles Times reported in September. Uber and Lyft contend they won’t be able to give drivers that flexibility unless they’re exempt from AB5. Meanwhile, freelancers have pushed back against the law, contending it could leave them without work entirely because companies can’t afford to hire them as regular employees.

Proposition 22 does have some benefits for workers: The ballot measure would not only exempt app-based companies from that law — it would also allow for a new classification of workers who would be entitled to some benefits typically not available to independent contractors.

Though the workers would remain independent contractors in name, allowing the companies to avoid paying payroll taxes and providing legal protections typically available to employees, workers would become eligible for limited employee-style benefits including a minimum wage for certain working hours equal to 120% of the state’s $13 per hour minimum (going up to $14 in 2021). Workers would also be given health care stipends to spend toward private employer-provided healthcare insurance, as well as up to $1 million in insurance coverage to cover on the job accidents and illness, as well as lost wages.

Opponents of the ballot initiative, including the California Labor Federation, argue the initiative doesn’t go far enough and creates a “second class ranking” for gig-workers in terms of benefits and opportunities.

“I think that what’s at issue here is an attempt by companies to circumvent the laws so as to have a greater profit margin,” said William Gould, a Law Professor at Stanford University. “These proposals come along at a time when the pandemic has exposed the frailty of the social safety net, which we have in place for employees. The pandemic has exposed the need to bolster and expand employee rights at a very time that these companies are seeking to diminish them.”

If the measure fails to pass in the companies’ favor, they can appeal to California’s Supreme Court. But such an effort could be an uphill battle given the court’s already cemented law that sets forth a three-part test for determining worker classifications.

Uber driver Sergei Fyodorov discusses why he supports a yes vote on Proposition 22 in Oakland, California on October 9, 2020. - Ahead of a referendum that could upend the whole gig economy, Uber driver Karim Benkanoun says his relationship with the rideshare giant must stop being a one-way street. "If youre a driver with Uber or Lyft, you're nothing," said Benkanoun as he speaks of how he will vote in California's Proposition 22 referendum. (Photo by JOSH EDELSON / AFP) (Photo by JOSH EDELSON/AFP via Getty Images)
Uber driver Sergei Fyodorov discusses why he supports a yes vote on Proposition 22 in Oakland, California on October 9, 2020. (Photo by JOSH EDELSON / AFP) (Photo by JOSH EDELSON/AFP via Getty Images)

Under the “ABC” test, workers are presumed employees, unless an employer proves the worker is free from the control and direction of the hiring entity, that the worker performs work outside the usual course of the entity’s business, and that the worker is customarily engaged in an independently established trade, occupation, or business.

On the other hand, Prop 22 would be hard to undo if it does pass. A change to the law would require a seven-eighths majority in the California legislature.

‘Significant’ cost increases for customers

Uber CEO Dara Khosrowshahi has maintained that a vast majority of the platform’s drivers and delivery workers prefer the flexibility that comes with working as independent contractors, and operate less than 40 hours a week. He recently told the Wall Street Journal a Prop 22 defeat would lead to “significant” cost increases for customers, and more limited service, and that the company would consider “all options” including withdrawing from the state of California altogether.

The initiative has exposed a big divide among part-time and full-time drivers. Gregg, who relies on ride-sharing to make a living and drives 60 hours a week, says the payout simply isn’t enough to get by. While he brings in more than $1,000 a week, Gregg says he only takes home just over $600, after paying for gas, car insurance, and car payments. He has no health insurance, and hasn’t been able to drive since the pandemic began, because his diabetes and lung condition puts him at high risk of COVID-19.

Jan Krueger, a 62-year-old retiree who drives roughly 15 hours a week, uses the money she makes from Lyft to help pay for vacations and veterinary bills. While she’s clocked 8,000 rides over a seven-year period, she doesn’t plan to keep driving if Prop 22 doesn’t pass.

“There’s no way I want a job, I don’t want somebody telling me when to show up and be accountable for anything. There’s just no interest in that,” Krueger said.

Despite who wins, results of the initiative are likely to have a ripple effect beyond the gig economy, and across state lines. Rebecca Henderson, CEO, Global Businesses and Executive Board Member at talent solutions company Randstad Sourceright, says she is working closely with companies, who are reassessing the health benefits or sick leave they provide to independent contractors, as they look to maintain workers in a rapidly changing environment.

“That’s an important part of filling in your worker population, and they need to be a strong employer of choice to do that. I think they’re constantly looking at the social contract, benefits and [asking] how do I make this an attractive position for you, whether you’re a flex worker or a permanent worker,” Henderson said.

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Akiko Fujita is an anchor and reporter for Yahoo Finance. Follow her on Twitter @AkikoFujita

Alexis Keenan is a legal reporter for Yahoo Finance. Follow her on Twitter @alexiskweed.

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About the author

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Jack Jensen

Jack is a sports enthusiast who loves indulging in occasional football matches. He is a passionate journalist who flaunts a perfect hold over the English language. He currently caters his skills for the sports section of West Haven Observer.

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