App-Based Driver Classification
Changes Employment Classification Rules for App-Based Transportation and Delivery Drivers
Defines some ride-hailing and delivery drivers as independent contractors rather than employees and establishes minimum benefits and labor protections for those drivers.
What the Measure Would Do
Proposition 22 would classify app-based drivers1 as independent contractors rather than employees, carving them out from California’s 2019 employment law, known as Assembly Bill 5. The measure would also establish a new set of benefits and labor protections for these contractors. The benefits include:
- A wage floor: Drivers would earn at least 120% of the state or local minimum wage
- Payment for injury on the job: Drivers would have their medical costs covered if they are injured while driving or waiting to drive and would have a portion of their lost income replaced
- Stipend for health insurance: For drivers who work more than 15 hours per week, they would receive a contribution to purchase a Covered California health plan, increasing based on the hours that they work
- Rest requirements: Drivers could not work more than 12 hours in a 24-hour period for a single company
- Non-discrimination protection and other requirements: Companies would be required to develop sexual harassment policies, conduct recurring criminal background checks and mandate additional safety training
Critical to the calculation of driver benefits is the concept of “engaged time,” which the measure defines as the amount of time a driver spends between accepting a ride-hailing or delivery request and completing that request.2 Finally, the measure limits local jurisdictions’ ability to establish other rules for app-based drivers. As an initiative statute, the measure could be amended legislatively by a supermajority vote of both houses and the governor’s signature.
Federal and state law establishes certain requirements and protections for workers based on how they’re legally classified. For example, workers classified as employees are entitled to state-mandated minimum hourly wage compensation, paid sick time, and rest and meal times while working. Employers are required to provide insurance for injuries sustained while working and to contribute to unemployment insurance. Workers classified as independent contractors, on the other hand, have the flexibility to work when they chose for whom they chose and set their own pay. Employers are not obligated to pay overtime, unemployment insurance, sick time or other benefits to these workers. Employment classification has become an increasingly important and contentious subject of labor law in recent years, as non-traditional, on-demand and freelance work has proliferated.
In 2018, the California Supreme Court established a new test for classifying workers as employees or independent contractors. The Dynamex case created a standard that requires businesses to classify workers as employees unless they satisfy all three of the following requirements to be classified as independent contractors:
- Works independently from a business’s control
- Performs work that falls outside the company’s normal business operations
- Operates as an independent business with other clients
Last year, the California legislature codified this “ABC” test into law as Assembly Bill 5, effectively narrowing the definition of which workers can be classified as independent contractors under state law. AB 5 applied the employment classification to a number of industries that had historically employed workers as independent contractors, like truck drivers, janitors, health aides, campaign workers and ride-hailing and delivery drivers. However, the legislature acknowledged that being classified as employees as a result of the ABC test was not optimal for many workers. As a result, AB 5 allowed workers in a number of industries to remain as independent contractors, such as real estate agents, physicians, builders, licensed manicurists, some tutors and freelance writers. The Legislative Analyst Office estimated the changes resulting from AB5 could affect roughly 1 million California workers.3
AB 5 went into effect in January of this year and remains a controversial law. Critics argue that in the effort to more strictly regulate ride-hailing and delivery companies, the law has hurt many other kinds of independent workers, from truck drivers to freelance photographers to translators. As a result, recent legislation exempted an additional 30 professions from being classified as employees under AB5, including performers teaching master classes, registered professional foresters and newspaper copy editors.
For ride-hailing companies like Uber and Lyft and delivery companies like Doordash and Postmates, AB 5 became the new front for conflicts over driver classification that have been playing out in the courts for several years. These companies have long asserted that their drivers should be considered independent contractors and that the drivers prefer the flexibility that comes with this classification. As contractors, drivers are able to choose their hours, cash out pay immediately, switch between companies based on who is offering the highest compensation (even working for competing companies in the same work week), and leave work at any time for any period. The contracting business model has created several hundred thousand part-time jobs across the state for Californians in need of supplemental income. Eighty percent of drivers work part time, and the vast majority report that driving is not their main source of income.4
From a customer’s perspective, the contracting business model allows these companies provide service in all corners of the state and keep prices low for the customer. It is estimated that classifying drivers as employees would increase customer costs by 20% to 30%.
On the other hand, these companies have not been subject to minimum wage requirements and have not offered many of the benefits and protections they would have had to if their workers were classified as employees. Many drivers and labor advocates have argued that these practices hurt workers who want benefits, better pay and union representation. In addition, these companies have avoided millions of dollars in payments towards safety net programs like Social Security, unemployment insurance and overtime.
Ride-hailing and delivery companies initially lobbied against AB 5 before proposing compromise options that would have maintained the independent contractor classification but provided greater protections to drivers and allowed them to unionize. But those proposals did not gain traction with either the California Labor Federation, who represents the state’s 1200 unions and sponsored AB5, or the legislature. When AB 5 passed without changes for ride-hailing and delivery drivers, Uber and Lyft began gathering signatures to place Prop. 22 on the ballot.
There is much speculation about how ride-hailing and delivery companies would respond should Prop. 22 fail.5 In an effort to control costs, the companies could shift a number of their practices: They might lay off hundreds of thousands of their part time workers; they might set shifts, reducing drivers’ ability to work when they want; or they might restrict services to high-demand areas at busy times. Or the companies might pursue a different model entirely and license their platform and technology to fleets operated by other firms. (Uber originally used this “franchise” approach in New York with traditional black car taxi cab companies.) Ride-hailing and delivery companies could also abandon California to focus on other markets, as they’ve alluded to in recent months.
Ride-hailing businesses have changed their practices in response to tighter restrictions in other states. In 2018, when New York City enacted a minimum pay rate for ride-hailing companies, Lyft responded by prohibiting drivers from logging on in low-demand neighborhoods. In 2016 after voters affirmed stricter requirements around driver fingerprinting, Uber and Lyft ceased operations in Austin.6
Prop 22 was put on the ballot by voter signatures, funded by five ride-hailing and delivery companies: Uber, Lyft, Postmates, Doordash and Instacart. As an initiative statute, it requires a simple majority (50% plus one vote) to pass.
An estimated 1 million workers drive for ride-hailing companies Uber and Lyft and delivery companies like Postmates and Doordash. Demographic information about these drivers is not widely available to the public. Data that has been released indicates that ride-hailing drivers are racially diverse and range in age from younger adults to retirees.7 The Legislative Analyst Office estimates that drivers make between $11 and $16 per hour, accounting for driving expenses and time spent waiting for rides.
While most drivers report that flexibility is central to the appeal of driving, that flexibility comes at a cost. App-based drivers have unreliable wages, little protection and no benefits as independent contractors. The COVID-19 pandemic has highlighted the precarity of this position. Should Prop 22 pass, these companies would create basic worker protections that are not as comprehensive as those outlined in AB 5. However, should Prop 22 fail, these companies may make significant changes to their employment practices that would likely reduce or fully eliminate the flexibility of this work and could eliminate hundreds of thousands of these jobs altogether. Another consideration is the service that these companies provide to customers who cannot afford a car, and the service they provide in neighborhoods that have seen little investment in public transportation.
- Prop. 22 would reduce the risk of companies eliminating hundreds of thousands of ride-hailing and delivery driver jobs in the midst of an economic recession.
- In an effort to reflect the current realities of the gig economy, this measure effectively creates a new class of worker: an independent contractor entitled to additional benefits and protections. While it does not do as much as AB 5 to protect and provide benefits to those drivers who want to drive full time, it would create more protections — and retain flexibility — for those drivers who want consistent yet flexible work as a supplement to their income.
- Ride-hailing companies provide essential transportation for many people who cannot afford cars and for neighborhoods that don’t have adequate public transit. There is a real possibility that ride-hailing companies would cease operation in these neighborhoods should Prop. 22 fail.
- Prop. 22 provides fewer comprehensive benefits and worker protections to ride-hailing and delivery drivers than they would receive in their current classification under AB 5.
- Prop. 22 would exempt app-based ride-hailing and delivery companies from paying millions toward public safety net programs like unemployment insurance and paid sick leave.
- Passing a measure at the ballot is a risky practice because it makes it very difficult to correct later, and Prop. 22 as written has some real drawbacks. This measure would be especially difficult to amend legislatively as it requires a supermajority in both the Senate and Assembly, plus the Governor’s signature.
- Pre-empting legislation by industry-funded ballot measures sets a dangerous precedent for policy-making in California.
Worker protections and benefits are critical to household financial security and are the cornerstone of a fair and functioning economy in California. On one hand, this measure doesn’t go far enough for some drivers, offering fewer benefits and protections than they would receive as traditional employees. And Prop. 22 would exempt major companies from the responsibility of investment in unemployment benefits, Social Security and other social safety net programs. On the other hand, Prop. 22 would allow drivers to retain the workplace flexibility that has attracted many to these platforms in the first place. And it reduces the risk of companies eliminating or reducing hundreds of thousands of ride-hailing and delivery driver jobs in the middle of an economic crisis.
In reality, neither current law nor this measure fully serves the totality of the ride-hailing and delivery workforce: some of whom are supplementing other work, some of whom are seeking income in between employment and some of whom are wholly reliant on full-time driving. We appreciate that this measure attempts to chart a middle path. SPUR believes that employment classification poses a legitimate threat to the viability of flexible ride-hailing and delivery models,8 and that the fallout could be devastating at this moment to the hundreds of thousands of drivers who rely on this work. However, it is a measure that codifies industry-written rules that are difficult to change. The legislature should be the venue to make necessary changes to California labor law, as it has been for other industries.
1. The measure defines app-based drivers as workers who either provide on-demand delivery services or pre-arranged transportation services in a personal vehicle through a business’s online application or platform.
2. Engaged time does not include time waiting for a ride-hailing or delivery request, time after a request has been cancelled by a customer or time after a request is abandoned by the driver.
3. Legislative Analyst Office, “Staffing to Address New Independent Contractor Test,” 2020, https://lao.ca.gov/Publications/Report/4151?utm_source=laowww&utm_medium=email&utm_campaign=4151
4. Lyft, “Economic Impact Report, 2020,” https://www.lyftimpact.com/stats/states/california
5. Separate from this ballot measure, Uber and Lyft have been challenging the employment classification in the courts. In May of this year, the state Attorney General as well as city attorneys from San Francisco, Los Angeles and San Diego, sued Uber and Lyft for failure to reclassify their workers after AB 5 went into effect. The San Francisco Superior Court sided with the state in early August, ruling that Uber and Lyft drivers are employees, though the lawsuit has been appealed. California is one of several fronts of this employee classification conflict: Uber is currently appealing a similar decision in the U.K. and in Massachusetts.
6. In their wake, several new ride-hailing companies formed, including a nonprofit that adjusted prices to give drivers a bigger cut of the fare. When state of Texas intervened and the ride-hailing companies returned to Austin, many of the other services were unable to compete and went out of business.
7. Entrepreneur, “Who Exactly are Uber Drivers?”, January 22, 2015, https://www.entrepreneur.com/article/242096
8. SPUR’s recent research emphasizes the importance of flexible mobility options to augment fixed-route public transit. SPUR, The Future of Transportation, August 2020, https://www.spur.org/publications/spur-report/2020-08-11/future-transportation