Newsweek

Score One for the Gig Economy

Companies like Uber and Lyft are cheering the passage of a new California law they say will save jobs and boost pay for drivers. But guess who the only clear winners are?

- BY KRISTIN WONG @thewildwon­g

Lyft and Uber Say a New Law Will Save Jobs. Guess Who the Real Winners Are

In a resounding vote In favor of the gig economy, with broad implicatio­ns beyond the Golden State, California­ns this Election Day passed Propositio­n 22, a measure that advocates claim put the future of Uber, Lyft, Doordash and other appbased work companies on the line, along with the livelihood­s of their drivers. The new law, which passed with nearly 60 percent of the vote after the companies spent a record-setting $205 million to help secure a win, maintains the status of these workers as independen­t contractor­s, rather than employees, while providing them with a few new benefits.

The net result, labor experts say: The companies will save billions of dollars a year in operating costs, helping to ensure their survival and the availabili­ty of this type of gig work for the hundreds of thousands of Americans who make their living or supplement their income by delivering passengers, food and other goods to their desired destinatio­ns. But survival comes at a potentiall­y high cost for these workers, who will now be entitled to fewer protection­s around pay, healthcare, sick leave and other issues than they’d be entitled to as employees. Propositio­n 22, says Ken Jacobs, chair of the Labor Center at the University of California-berkeley, “will take away basic rights and benefits for drivers under the law.”

Critically, the new measure is also expected to reverberat­e beyond California as other cities and states fight their own battles to regulate gig work. Perhaps because so many of these companies—uber, Lyft, Instacart—are headquarte­red in California, the state has led much of the national conversati­on on gig workers’ rights. When Sacramento passed a measure last year to push companies that rely on independen­t contractor­s to reclassify many of these workers as employees, it kicked off similar legislativ­e efforts in New Jersey, New York, Rhode Island, Pennsylvan­ia and Washington and other states were expected to follow suit. Says Lindsey Cameron, a researcher and assistant professor of management at the Wharton School, University of Pennsylvan­ia, “Labor scholars said it was the biggest change in labor policy in the past 20 years.”

The Ubers and Instacarts of the world claimed the earlier measure, Assembly Bill 5 or AB5, would kill their businesses by sharply driving up operating costs, and have been fighting back with legal challenges ever since. Then the pandemic dealt a second, potentiall­y

deadly blow to gig work: In August, Uber reported a $1.8 billion dollar loss after a sharp decline in users; Lyft revenue declined by 61 percent. Meanwhile, surveys showed that even the independen­t contractor­s who were supposed to be the beneficiar­ies of AB5 and similar legislatio­n, had mixed feelings about the efforts to save them from exploitati­on. Some welcomed the opportunit­y to get traditiona­l workplace protection­s but others complained about the loss of flexibilit­y and worried that opportunit­ies to make money in the gig economy would dry up.

The passage of Propositio­n 22 is likely to reframe and reignite the debate over gig work yet again.

What Prop 22 Will— and Won’t—do

the enormous amount of money spent on Prop 22 reflects the high stakes involved in the outcome. In fact, the initiative turned out to be the most expensive state ballot measure in recent history, with a total of $225 million spent, according to Ballotpedi­a. The campaign to pass it was led by Uber, Lyft, Doordash, Instacart and Postmates, with support from groups as diverse as the California Chamber of Commerce, the California Police Chiefs Associatio­n and the California NAACP. The opposition, including many unions and labor rights groups, spent less than 10 percent, or $20 million, of the total dollars involved.

The propositio­n exempts ride-sharing companies from AB5, allowing app-based drivers to continue to be classified as gig workers rather than employees. As a nod to the charges of exploitati­on that drove the passage of AB5 last year, the new measure also included a handful of new benefits for drivers that are not typically extended to independen­t contractor­s. They include setting a partial minimum wage (only for the actual time on the road), a stipend to help cover the cost of a healthcare plan for the most active drivers and insurance coverage for accidents, illness and lost wages.

What the measure won’t do is address the larger problem AB5 aimed to stop: companies mislabelin­g workers, who are in essence on their staffs, as independen­t contractor­s, a type of employer fraud known as “labor misclassif­ication.” According to the Economic Policy Institute, between 10 to 20 percent of employers misclassif­y at least one worker as an independen­t contractor. These freelancer­s aren’t entitled to the full suite of benefits allowed under employment law, including broader minimum wage rules, overtime pay and sick leave, explains Cameron, nor do employers have to pay into the Social Security and Medicare systems on the workers’ behalf.

Potential discrimina­tion is also an issue. “Contractor­s aren’t protected by basic Equal Employment Opportunit­y laws,” Cameron says. “They’re at the mercy of the company hiring them.”

For those companies, not having to pay full benefits is a big boon to the bottom line, with savings of up to 30 percent in operating costs, the National Employment Law Project (NELP) has found. That’s a big appeal of a mostly-freelance workforce for employers at any time but especially compelling for businesses struggling financiall­y during the pandemic.

For the economy as a whole, though, the picture is darker. Billions of dollars in federal revenue are lost each year due to worker misclassif­ication, NELP reports. Officials also estimate that misclassif­ication costs the state of California $7 billion a year in payroll taxes, which was part of the motivation for passing AB5 in the first place and for the similar laws that were subsequent­ly considered in other states as well.

Unintended Consequenc­es

While employer pushback to ab5 was understand­able, it turned out that many gig workers didn’t love the new law intended to help them either, largely because it ended up costing them money too. The reason: As Tristan Blaine, a small business lawyer in Los Angeles, explains, while some companies converted their freelancer­s to employees in order to comply with the law, others simply avoided California-based freelancer­s altogether.

For example, last December, Vox Media announced it would cut 200 freelance writing jobs in California in order to comply with the new law. VIPKID, a company that hires contractor­s to teach English online, also announced it would no longer accept applicatio­ns from California in the wake of AB5. And they were far from the only ones.

In the estimation of many experts, the problem AB5 tried to address was real but the bill itself backfired, by failing to recognize that identifyin­g labor misclassif­ication isn’t a straightfo­rward, one-size-fits-all issue. “They passed a series of rules in AB5 for all contractin­g, killing the fly with a cannon,” says Christophe­r Thornberg, director of the Center for Economic

Misclassif­ication costs the state of California $7 billion a year in payroll taxes.

Forecastin­g and Developmen­t at the UC Riverside School of Business. “It’s the law of unintended consequenc­es, in action and on steroids.”

Thornberg says ever since the bill was passed, the state has been “handing out exemptions in every direction.” Less than a month into its implementa­tion last January, a state judge ruled the bill wouldn’t apply to truckers. And in September, California Governor Gavin Newsom signed an emergency measure to modify AB5 and loosen requiremen­ts for writers, photograph­ers, musicians and other creative profession­als. Now with Prop 22 passed, ride-sharing drivers will also be exempt.

As a result, the widespread changes to the gig economy that were anticipate­d after AB5 took effect haven’t materializ­ed and legislatio­n has stalled in other states as well. For example, after the backlash against AB5, the New Jersey Senate let S4204, its own version of the initiative, die during the legislativ­e session.

Questions Remain

that said, ab5 did raise Important questions about how companies treat independen­t contractor­s and clearly was the driving force behind the inclusion of some limited benefits in Prop 22. Among them: The measure establishe­s a new pay structure for app-based drivers that offers them 120 percent of the local minimum wage; health insurance subsidies on a sliding scale for drivers who work at least 15 hours a week; and reimbursem­ent of 30 cents a mile while they’re on a trip or en route.

The protection­s aren’t as extensive as those offered to employees under state and federal law, though. And drivers are only paid that minimum wage for “engaged time,” meaning when they’re waiting for a ride or delivery, they won’t earn a penny.

“I’ll sit around and wait for an hour and finally get a ride, and it’s five bucks,” says Kimberly James, 45, a full-time gig worker in Georgia who drives for Uber. James says that when the apps were first introduced, she was able to earn a decent income, but with more drivers using them, it’s become a less lucrative income stream. These days, driving for Uber feels less like a way to earn extra income and more like she has no other choice. “They keep changing things and now I don’t know what I’m going to do,” she says. “My car payment was due two weeks ago.”

Despite feeling exploited by these apps, James doesn’t want the alternativ­e. “I don’t want to be Uber’s employee,” she says. “Because then what happens? I don’t see it helping.”

Many labor groups say that Prop 22 has its own share of unintended consequenc­es. NELP claims that the measure could leave drivers vulnerable to COVID-19, since the companies aren’t required to follow any California health and safety laws. It’s also unclear, even with the new minimum-wage stipulatio­ns, how Prop 22 will impact driver income; estimates

vary widely. In one study, for instance, the UC Berkeley Labor Center found that drivers will earn as little as $5.64 per hour under Prop 22. Thornberg, by contrast, estimates that drivers are more likely to earn between $25 and $27 an hour, after accounting for driver expenses and wait time.

Another potential problem: The measure also make it nearly impossible for lawmakers to amend it in the future, Jacobs says. Changes in any of its provisions need to be approved by a super majority of seventh-eighths of the state legislatur­e to pass.

Clouds Over the Future of Gig Work

one thing Is certain: the new legislatio­n, both Propositio­n 22 and its Ab5-like predecesso­rs, has opened an important conversati­on about how

“I don’t want to be Uber’s employee,” says one driver. “I don’t see it helping.”

to ensure the rights of gig workers, who now make up an important part of the labor force—at least 30 percent of adults in the U.S. currently do some type of gig work, according to Federal Reserve estimates. “It will be interestin­g to see what the state does with AB5 now,” Thornberg said. “After all, the primary reason for it was just exempted from it. Do you dump it and try again?” Jacobs, for one, predicts the battle over gig worker rights will likely move to the federal level.

The discussion­s will be about more than compensati­on. As a driver, James says she’s been sexually harassed several times. “One guy was sitting in the backseat of my car and pulled out his penis. Someone else pulled a gun on me,” she says. “You report it to Uber, but they just say they won’t pair you with that rider anymore.” Another driver, 28-year-old Erika Betts, says the automated, hands-off business model of the apps is also problemati­c. “The fact that I don’t have a direct boss is a big barrier,” she says. “It’s created an unsafe, insecure environmen­t for workers. That’s why I think the reclassifi­cation was needed.”

If the gig economy is so bad, why keep working in it? Workers are gravitatin­g more toward freelance work because they’re having a hard time finding traditiona­l employment, or having a hard time making ends meet on a single income. A survey from Deloitte found that only six percent of Millennial­s say they’ve chosen to be in the gig economy instead of working full time.

“I also have a multitude of health issues that make it hard to do a traditiona­l job,” says James, who believes many of her fellow drivers are in the same situation. “They’re disabled, or they’re single moms who need flexibilit­y with child care, or they’re elderly and they can’t find work.” This dynamic is what allows these companies to function, she says. “We’re desperate for work, and they know it.”

Although Prop 22 doesn’t offer appbased drivers the same protection­s as full-time employees, it’s also true that

the nature of gig work doesn’t fit the traditiona­l employee work-model. Drivers set their own working hours, for example, and they use their own vehicles. On the other hand, gig work is no longer just a flexible way to pick up some extra cash—it’s become a livelihood for many workers.

Prop 22 may have saved the gig economy, but criticism of the measure raises an interestin­g question: Is the gig economy worth saving? If so, what about it needs to be changed?

For better or worse, Millennial­s and Generation Z might be the age groups most affected by these changes. A 2019 study commission­ed by Upwork and the Freelancer­s Union found that 53 percent of Gen Z workers and 40 percent of millennial­s are freelancin­g, compared to 31 percent of Gen X and 29 percent of baby boomers. Cameron points out that minority workers are also among those most affected—according to the research firm Edison, over half (55 percent) of African-american gig workers rely on a gig job as their primary source of income.

For their part, ride-sharing companies are breathing a sigh of relief, Thornberg says. “Albeit a temporary one, in as much as California is not the only state taking aim at these systems.” Other cities, states, and countries continue to debate the rights of gig workers. Britain’s Supreme Court is currently deciding whether two Uber drivers are entitled to employment protection­s; Canada recently ruled in favor of a driver in a similar case. The Massachuse­tts Attorney general is suing Uber and Lyft over alleged labor misclassif­ication, and the state of New York recently ruled that Postmates drivers should be considered employees who are entitled to unemployme­nt benefits.

The big, still open question: Will California’s passage of Propositio­n 22 undermine these efforts?

Cameron believes the one certainty is continued discussion around rewriting the rules of the gig economy. “We’re going to see a rejiggerin­g of how these companies are actually classified, in other words, what kind of company they are.” For example, because Uber is considered a technology rather than a transporta­tion company, they’ve thus far been able to skirt other types of regulation­s, like vehicle inspection­s, she explains. She adds that companies in industries that have typically relied on contract labor, such as cleaning services, are now hiring individual­s as employees from the start. “I don’t know if it’s in direct response to the legislatio­n. Maybe it’s more of a preemptive move. It could be that they see the writing on the wall, or they want to do better by their workers, or maybe they just want a more positive reputation in the media. There could be a lot of factors.”

Time will tell whether the passing of Prop 22 actually addresses worker exploitati­on in a meaningful way. But in the meantime, it’s a conversati­on that should be ongoing. “I hope they can find a happy medium so that we can continue to provide these services,” Betts says. “But it can’t be at the expense of workers. We’re left with little to no options.”

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 ??  ?? NEED A LYFT? Rideshare services have seen a sharp drop in demand—and revenue— due to the pandemic. Prop 22, which California Governor Gavin Newsome didn’t take a stand on, will save the companies a lot of money.
NEED A LYFT? Rideshare services have seen a sharp drop in demand—and revenue— due to the pandemic. Prop 22, which California Governor Gavin Newsome didn’t take a stand on, will save the companies a lot of money.
 ??  ??
 ??  ?? MIXED REACTION Gig workers staged several protests objecting to the ballot initiative but surveys showed many drivers actually supported the measure.
MIXED REACTION Gig workers staged several protests objecting to the ballot initiative but surveys showed many drivers actually supported the measure.
 ??  ?? SAFE PASSAGE Health concerns and protective gear have become critical for ridesharin­g drivers and passengers alike during the pandemic.
SAFE PASSAGE Health concerns and protective gear have become critical for ridesharin­g drivers and passengers alike during the pandemic.

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