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California’s newly passed Proposition 22, which allows app-based companies like Uber (UBER) and Lyft (LYFT) to continue classifying drivers as contractors, is proving to be a divisive topic among drivers — often based on whether they work full-time or part-time.
The ballot initiative known as Prop 22 attracted more spending than any referendum in the state’s history, and with its passage gig companies Uber, Lyft, DoorDash, Uber’s Postmates, and Instacart can now count the $200 million expenditure as money well spent.
“I think the most important thing as a result of Prop 22 is that a layer of uncertainty has been removed from both our business and frankly more for our drivers,” Anthony Foxx, Lyft’s chief policy officer, told Yahoo Finance Live on Wednesday. “They now know that they're going to walk into a world in which they can continue to be flexible, independent workers, but they're now going to have a stronger safety net and we're very happy to see that happen.”
But not all drivers will see it that way. Prop 22 exempts gig economy companies from California’s Assembly Bill 5, or AB5, which reclassified many independent contractors as employees and gave them all of the rights associated with that status. Prop 22 does provide a handful of benefits to gig workers — such as health care stipends, a minimum wage for some employees, and expense reimbursements — but they are still classified as contractors.
‘The big caveat and worry’
The binary choice between AB 5 and Prop 22 still leaves drivers ill at ease, according to Harry Campbell, whose blog The Rideshare Guy caters to app-based transportation workers. Some drivers who voted “yes” to independent contractor status may question how much of their independence was actually maintained. And, they, along with those who voted against it, wonder what changes to their income remain to be seen.
“I think for a lot of drivers they are happy they get to stay independent contractors, but the big caveat and worry that a lot of drivers have is that over the years, the companies have really shifted away from flexibility,” Campbell said.
Even though the companies designate drivers as independent contractors, Campbell said, drivers worry that the companies will lower their rates and replace that with a system that tells them where and when to drive, because under Proposition 22 the companies have agreed to take on additional costs to provide employee benefits that were not offered under the app companies’ prior business models.
“If the companies are now going to give drivers something extra, where is that going to come from?” Campbell asked. “Are they going to take something else away from drivers, whether it's flexibility, or whether it's lowering of their rates?”
As for Lyft, Foxx said the company is committed to working within its new parameters in California and that both flexibility and the new benefits can coexist.
“I think that leaders across the country who may have been looking at doing something like AB5, I hope they take a moment and digest the fact that this flexible work model is something that deserves to be protected, but you don't have to sacrifice the safety net to do that. There's a way to do both,” said Foxx, who served as Transportation Secretary under President Barack Obama.
It also remains unclear whether the state of California will seek to hold the companies liable for violating AB5 this year, before Proposition 22 has gone into effect.
Foxx said he did not yet have an answer to how the company will handle a potential lawsuit from the state over AB5 violations, and that Lyft’s legal team had been looking into the issue.
‘A threat from these companies’
Much of the disagreement between drivers’ preferences for employee versus independent contractor status if fueled by the differences in the way the workers rely on the companies for income. Those who have made driving their full-time jobs tend to be more willing to sacrifice flexibility of when, where, and how many hours they work in exchange for the types of benefits and legal protections that come with employee status. On the other hand, those who drive part-time tend to prefer flexibility in exchange for fewer benefits.
“I think that's something that kind of still needs to be addressed,” Campbell said, explaining that the 10% to 20% of Uber and Lyft drivers who are driving 30, 40, 50 hours per week perform 50% to 60% of the total rides on the platforms. “It’s a career without any of the benefits.”
“They're essentially working like employees but being paid like independent contractors and, you know, they're not getting any of the benefits of employee status and any of that workers compensation. Or if anything goes wrong they’re still on their own.”
Doug Mead, who retired but became a full-time driver for Uber Eats and Postmates, during the coronavirus pandemic, told Yahoo Finance Live’s Akiko Fujita that he voted for Proposition 22 in order to ensure his continued flexibility.
“I worked less than eight hours and made $200. That's over $25 an hour,” Mead said, before Tuesday’s vote. “I'll lose that if there's a ‘no’ vote. Why would I want to give that up?”
Full-time Uber and Lyft driver, Cherri Murphy, disagreed, in her own interview with Yahoo Finance before Tuesday’s vote.
“Billion-dollar corporations can afford to provide workers with flexibility and benefits, like unemployment insurance and sick leave,” she said. “And this is simply a threat from these companies, because they know that it will scare drivers.”
Alexis Keenan is a legal reporter for Yahoo Finance and former litigation attorney.
Follow Alexis Keenan on Twitter @alexiskweed.