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Bruce Bialosky

Uber Decision and Proposition 22

One of the most important changes in California in the last couple years is the change of how independent contractors are treated and whether they should be W-2 employees. There is no doubt that some employers were abusing the law in California that aligned with the federal rules. The question is did we throw the baby out with the bathwater? And it is clear that was exactly what was done.

New rules were set in place by a California Supreme Court ruling in the Dynamex vs. Superior Court of Los Angeles. The ruling in short established that someone working for a company was an employee not an independent contractor. The burden of proof became the companies; they must show the person was not an employee.

Then the legislature drafted AB5 and the Governor signed this bill which codified the Supreme Court ruling with many exceptions for various different professions. A labor law mediator who is an expert on labor law in California stated that he believes the exceptions in the law has made AB5 problematic. There are more exemptions that were being put forward that are on hold because of the COVID situation. For example, the musicians were not considered in initial exemptions. If a band needs to replace a player for one date and the musician is paid $400, current law dictates that person must be treated as an employee with all the accompanying paperwork. Most think that makes no sense.

AB5 and the court ruling came from the old economy. The generation of this entire legal issue goes back to a 2010 California Supreme Court case entitled Martinez V. Combs. That was the old economy. The battle is over the new economy and what is referred to as “gig workers.” Gig work is defined as “work consisting of income-earning activities outside of traditional, long-term employer-employee relationships.” The problem is that laws are written in black and white and cover anybody that is paid as an independent contractor.

Gig workers have become ubiquitous in our economy. They may have a full-time job and want to supplement their income or they have other personal obligations and work when they become available. This has all become possible because of the advent of smart phones. What gig workers like is they can jump into working when they want to and jump off when they want to move on for the day. They set their own schedule. A multitude of businesses use this model. Well-known companies like Uber, Lyft, DoorDash, Postmates, Instacart. And many more have sprung up to provide services, some of which have become essential in the time of COVID.

Recently, Uber and Lyft lost a lawsuit to delay this implementation of the rules under AB5. That ruling has been put on hold. But the issue is in the hands of the residents of California in the form of Proposition 22.

Prop 22 would classify app-based workers as independent contractors and not employees or agents. This specifies drivers, but it is clear others who are app-based will fall in the same category, but then this is California and the courts are as wild as the legislature. If the prop is defeated, these businesses will have to significantly redo their business model and I doubt they can make that work. They are looking at a franchise model which would involve a significant transition and additional burdens on the workers who this legislation is supposedly protecting. The labor law mediator thinks that Uber’s threat to shut down in California is hollow and if they do someone else will take their place. Easier said than done to fulfill the services these companies provide.

Prop 22 would enact labor and wage policies specific to app-based drivers and companies, including a net earnings floor for the drivers based on 120 percent of the state or local governments’ minimum wage applied to a driver’s engaged time. In addition, the driver will receive 30 cents per engaged mile; a limit to the hours permitted to work during a 24-hour period; healthcare subsidies; occupational accident insurance; and accidental death insurance. A driver’s engaged time would be the time between accepting a delivery or rideshare request and completing the request. The ballot measure would also require the companies to develop anti-discrimination and sexual harassment policies.

One of the things that is not spoken about in this gig worker debate is that many are inherently different than the independent contractors that were historically misclassified by employers. These gig workers incur expenses whether they work for the companies named above or in other roles like dog walkers. They incur auto expenses; they may buy supplies (like the drivers who supply water or mints for their customers) or other expenses. As independent contractors they can deduct those expenses against their income and reduce their income and payroll taxes. If they become W-2 employees, they will not be able to deduct those expenses because employee business expenses are no longer deductible federally. That is a large penalty to these people who do not make a lot of money in the first place. That may make it financially unacceptable for them to be able to do this business, again harming the people who the laws are supposedly protecting.

Prop 22 seems to be a reasonable compromise. If we no longer have these services or drive the cost up so high that customers will abandon them, we will soon see the unintended but real harm done by this new law. Curtailing ridesharing will harm two groups in particular: seniors who can stop driving because of the easy access provided to riders, and young adults who use the service on party nights to avoid DUIs which not only saves them but us as well. One person who operates a service where people attend parties says almost everyone uses the service on party nights. DUIs have dropped significantly across the country due to ridesharing.

Then there are other services like having meals delivered during COVID or Instacart doing your shopping for you — both essential for seniors housebound during this period. Many will continue using these services as they are lifesavers.

A Yes on Prop 22 will be better for all parties involved. The money for opposition to Prop 22 is coming from the labor unions in the state. That may give you an idea of what the opposition’s real goal is which is to unionize the new workers and collect dues from them.

You have the choice to save these vital services.