The most expensive initiative in the State of California ($200 million) ends in a resounding victory for app-based companies such as Uber, Lyft, and DoorDash as California voters ruled that gig economy drivers and other workers are to be treated as independent contractors, not employees. The initiative offers a wage floor and limited benefits to drivers, but the companies will not have to pay health care, unemployment insurance and other benefits.
In January AB 5 took effect in California which codified the ABC test. The ABC test has three prongs:
- The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
- The worker performs work that is outside the usual course of the hiring entity’s business.
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
Exemptions were expected for some types of freelancers, such as architects, doctors, insurance agents and truck drivers but the law was so problematic that over 100 carve-outs were eventually put into place leading up to the vote on Proposition 22. As more and more people switch to an independent type of work (and that trend is only going to increase due to Covid) clarifying who is and is not an employee, who is and is not an independent contractor is paramount. That California’s predominantly left-leaning voters rejected the notion of classifying app-based gig workers as contractors should give pause to other states looking to follow suit with AB 5 type of legislation. New Jersey, Massachusetts, New York, and Illinois have been among those considering crafting such legislation.
Misclassification of workers remains a serious issue and the Prop 22 vote provides even less clarity. Clearly, AB 5 was too extreme for voters’ tastes but elected officials are not wrong to go after bad actors who intentionally misclassify workers to keep wages low and avoid paying benefits. They must find a way that does not impact small business growth, flexible work options, or needed opportunities for workforce entry.