California voters on Nov. 3 overwhelmingly approved Proposition 22, agreeing with the gig economy companies that the state’s strict ABC test set forth in last year’s controversial AB5 law should not apply to drivers such as those for Uber and Lyft. In addition, it potentially creates a path for a worker classification system in this country that allows for something in between an employee and an independent contractor.

Assembly Bill 5 was passed last fall and went into effect Jan. 1. It set up an "ABC" test for determining whether workers are employees or independent contractors, requiring that workers be regarded as employees unless they met all three “prongs” of the test. One of the requirements, the “B prong,” prohibited companies from using independent contractors unless the worker was performing work “outside the usual course of the hiring entity’s business.” Most experts believe this will largely preclude the use of owner-operator drivers by motor carriers, especially if they also use employee drivers.

The passage of Prop 22 means gig drivers will not be automatically reclassified as employees. However, it does require these companies to provide certain guaranteed minimum payments and benefits. Minimum earnings are based off of 120% of the local minimum wage, and drivers get full payment of their tips as well as per-mile compensation for the use of the vehicle. They also get a healthcare subsidy based on the average weekly amount of hours of “engaged time” a driver performs, plus occupational accident coverage.

In an email alert, the transportation attorneys at Scopelitis, Garvin, Light, Hanson & Feary note that gig economy companies have faced heavy pressure from the state, not only via AB5 but also in court, and in response mounted the most expensive ballot initiative in the state’s history.

“This compromise marks the beginning of an alternate worker classification system (sometimes termed ‘dependent contractors’) within the United States,” they said.

As the Wall Street Journal explained in a 2015 article, some legal experts say the definitions of employee and independent contractor, which date back to New Deal legislation, “are out of step with the realities of work in the digital age.”

Wilma Liebman, a former chairwoman of the National Labor Relations Board and an adjunct professor at New York University School of Law, “suggested the dependent contractor classification in a dissenting opinion she wrote in 2005 in a case about newspaper carriers. In that opinion, she noted that Canada and Germany have statutes protecting such workers,” WSJ writes.

However, those pushing for gig workers to be labeled as employees vowed to continue the fight. The Independent Drivers Guild, which claims to be the largest gig worker organization in the country, responded to California’s passage of Proposition 22 by issuing a statement calling upon state legislatures in New York, New Jersey and other states “to act quickly to empower gig workers with collective bargaining rights.”

The IDG is a Machinists Union affiliate which advocates for more than 200,000 Uber and Lyft drivers in New York, New Jersey and Connecticut. 

“The big platform companies may have won in California, but the gig worker fight has only just begun,” said Brendan Sexton, executive director of the Independent Drivers Guild, in a news release. “Proposition 22 leaves California’s gig workers with no representation, no collective bargaining rights, no path to negotiate a livable wage, and no ability to have a real voice in their pay and benefits.”

Dara Khosrowshahi, Uber CEO, recently wrote about the economic impact of requiring gig drivers to become employees. "Uber conducted an analysis to measure the economic impact of requiring all drivers in the U.S. to be employees. Before COVID-19, nearly 1.2 million drivers in the U.S. were actively earning income on Uber’s platform each quarter. According to our research, if Uber instead employed drivers, we would have only 260,000 available full-time roles—and therefore 926,000 drivers would no longer be able to work on Uber going forward. In other words, three-fourths of those currently driving with Uber would be denied their ability to work."

What About Trucking?

Whole noting that the direct impact of Prop 22 is limited to true gig economy operations and does not translate to a larger win for the transportation industry, the Scopelitis alert added, “this victory is another indication of the overreach of AB5 and the value that voters place in being able to perform work as independent contractors.”

“This vote in one of the most progressive states in the country should send a strong signal to elected leaders all over the nation,” said Jan Krueger, a part-time Lyft driver from Rancho Cordova who retired last year, in a press release from supporters of the proposition. “Drivers want and need to be independent. We can protect independent work while also offering drivers new benefits. Prop 22 should serve as a model for other states and the federal government to follow.”

Joe Rajkovacz, who handles government affairs and communications for the Western States Trucking Association, told HDT, “I think this very much harms the state’s legal argument that AB 5 is a ‘law of general applicability,’ which is the cornerstone of their legal argument defending AB 5 in federal court. There are so many exemptions now to AB 5, including this victory for Uber/Lyft, that it almost seems the only major industry now in the crosshairs of AB 5 is trucking.”

He also speculated that with many companies now using app-based dispatching, such as Uber Freight, there might be a case to be made to apply similar exemptions to trucking businesses that model their dispatch similar to that of Uber and Lyft. 

Weston LaBar, CEO of the Harbor Trucking Association, believes that most of the impacts of AB 5 on trucking will be settled in the courts. “I think it is still unclear if Prop 22 will have any effect on our industry.”

The California Trucking Association declined to comment. It is in the midst of a legal challenge to AB5, claiming that it is expressly preempted by the Federal Aviation Administration Authorization Act (FAAAA), which prohibits states from passing laws “related to a price, route, or service of any motor carrier.”

A judge agreed and issued a preliminary injunction on the eve of the law taking effect in January and reaffirmed it two weeks later.