Q: What is Prop 22 and What Does it Mean for California Businesses and Freelancers?
California Proposition 22 addresses the classification of app-based drivers, with potential repercussions for the larger gig economy.
On November 3rd, 2020, Proposition 22 was passed with 58.5% of California voters choosing “Yes” and 41.5% voting no. Proposition 22 was the most hotly debated ballot in this year’s election. In fact, the campaigning over Prop 22 has been the most expensive ever waged over a California ballot to date. Uber, Lyft, DoorDash, Postmates, and Instacart have poured millions of dollars into the “Yes on 22” campaign with over $200 million being raised in total by supporters of the initiative. In comparison, opponents of the initiative have raised around $19 million dollars. Calfornia Prop 22 may only pertain to app-based drivers, but this ballot’s measures are pertinent to a large part of the gig economy and will directly affect hundreds of thousands of people.
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Summary of California Prop 22
California Prop 22 or the “App-Based Drivers as Contractors and Labor Policies Initiative” is now in place, which means a few things:
- Rideshare drivers are not be classified as employees but rather as independent contractors who are not covered by state employment laws (such as minimum wage, overtime, unemployment insurance, workers compensation, etc.).
- Drivers are instead entitled to other forms of compensation.
- New restrictions of certain local regulation of app-based drivers.
- It is now a criminal act to impersonate drivers.
What is the Impact of California Prop 22?
The primary impact if California Prop 22 is that app-based drivers are now considered independent contractors rather than employees, and thus are not covered by state employment related labor laws. Instead, there are now labor and wage policies specific to app-based driving companies. According to BallotPedia, these include:
- App-based drivers receive payments for the difference between their net earnings (excluding tips) and a net earnings floor based on 120% of the minimum wage applied to a driver’s engaged time* and 30 cents per engaged mile (adjusted for inflation after 2021)
- Drivers are limited from working more than 12 hours during a 24-hour period unless the driver has been logged off for 6 hours straight
- For drivers with an average of 25 or more hours each week of engaged time during a calendar quarter, companies must provide healthcare subsidies equivalent to 82% of the average California Covered (CC) premium for each month
- For drivers with an average of 15-25 hours each week of engaged time during a calendar quarter, companies must provide healthcare subsidies equal to 41% of the average CC premium for each month
- Companies are required to provide or make available occupational accident insurance that covers at least $1 million in medical expenses and lost income resulting from injuries suffered while a driver was online (but not engaged in personal activities)
- It is required that the occupational accident insurance provides disability payments of 66% of a driver’s average weekly earnings during the previous four weeks before the injuries suffered (while the driver was online but not engaged in personal activities) for upwards of 104 weeks (~2 years)
- Companies are required to provide or make available accidental death insurance for the benefit of a driver’s spouse, children, or other dependents when the driver dies while using the app
*California Prop 22 defines a driver’s “engaged time” as “the time between accepting a service request and completing the request.” –BallotPedia
Due to California Proposition 22, app-based driving companies are now required to implement anti-discrimination and anti-sexual harassment policies. They also need to create training courses for their drivers that instill proper conduct relating to driving, traffic, avoiding accidents, and properly identifying and reporting sexual misconduct.
Under the ballot measure, companies must have a formalized no-tolerance policy for driving while under the influence of alcohol and drugs. Prop 22 also makes it such that criminal background checks are required for drivers and that an app-based driver’s false impersonation would be a misdemeanor.
What about future amendments to California Prop 22?
California Proposition 22 does have a rare and strict amendment policy. In California, most laws enacted through ballot measures can only be changed through a law passed by a future ballot measure. However, Prop 22 includes a clause that requires a seven-eighths supermajority vote in each chamber of California’s Legislature and the governor’s signature for amendments to be made. If a potential amendment is not consistent with and does not further the purpose of California Proposition 22, then it would need voter approval.
The future of the gig economy
Prop 22 implies significant changes for the gig economy, starting with the fact that gig drivers must be classified as independent contractors. We can likely expect large companies like Uber and Lyft to seek out similar legislation in other states.
For now, this only applies to app-based drivers, but the labor groups who fought against Prop 22 hope to lobby the Biden administration for new federal laws on worker classification — something that could apply to the gig economy as a whole.
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Updated: November 10, 2020
Quick note: This is not to be taken as tax advice or legal advice or payroll advice. Since tax rules and laws change over time and can vary by location and industry, consult a CPA / tax advisor and/or attorney for specific guidance.