November 6, 2020Compliance

Prop 22: Are drivers exempt from AB5?

California voters decided if drivers are exempt from AB5 by voting on Proposition 22, officially known as the App-Based Drivers as Contractors and Labor Policies Initiative. The proposition aims to expand who is exempt from AB5 by allowing app-based ride hailing and delivery companies to classify drivers as independent contractors. The initiative also includes requirements for gig employers regarding driver pay, consecutive hours worked, healthcare subsidies, insurance and labor policies.

Read the full explainer about California’s gig worker law: What is AB5?

What are the results for Prop 22?

California’s Secretary of State reports nearly 60% of Californians voted yes on Prop 22 meaning the initiative will become law. Rideshare and delivery drivers are now exempt from AB5 and may be classified as independent contractors instead of employees.

The proposition is the most expensive ballot initiative ever for the state of California, with more than $200 million dollars pouring in to push the initiative forward on the ballot. Companies like Uber, Lyft, DoorDash, Postmates and other app-based driving gig companies claim a significant victory, because they are no longer required to classify their app-based drivers as employees and offer minimum wage, overtime and vacation pay or healthcare. Some gig drivers are also celebrating the results because they can continue to set their own schedule and work for multiple companies.

Opponents of Prop 22 denounce the newly passed initiative as a significant loss for rideshare and delivery drivers because, as independent contractors, they’re not eligible for minimum wage, vacation time and employer-provided healthcare. Some gig workers hoped to be classified as employees and receive these additional benefits along with more job stability. As independent contractors, rideshare and delivery drivers may have to look for other ways to enhance their income.

Are drivers exempt from AB5?

Some drivers, yes. With the passage of Prop 22, app-based rideshare and delivery drivers are shielded from the requirements of AB5. Specifically, the exemption applies to workers who (a) provide delivery services on an on-demand basis through a business’s online-enabled application or platform or (b) use a personal vehicle to provide prearranged transportation services for compensation via a business’s online-enabled application or platform.

Prop 22 doesn’t exempt truck drivers or motor carriers from the law. In fact, AB5’s impact on the trucking industry has had a long legal battle ultimately leading to truck drivers being considered employees under the law.

Prop 22 doesn’t mean AB5 is invalid or revoked. Except for the exemptions granted to drivers as defined above, AB5 remains in full force for other workers in the gig driving and delivery industry.

What does Prop 22 mean for gig companies?

Gig companies who employe app-based drivers no longer have to classify these drivers as employees. Because drivers are independent contractors, employers are not required to provide minimum wage, overtime pay, unemployment insurance and workers’ compensation. For larger companies, this may keep overhead costs lower and increase profits.

It’s important to note that gig companies did make some concessions in order to get Proposition 22 on the ballot. Specifically, drivers are now entitled to minimum earnings, healthcare subsidies and vehicle insurance. For smaller companies, these new requirements may increase costs.

What’s next for the gig economy?

While Prop 22 passed, the battle over gig worker classification—for drivers and beyond—isn’t over. Proponents of AB5 are already planning on additional measures that can be introduced by the legislature and by ballot initiatives to further strengthen AB5 and provide additional benefits to gig workers. Attacking Prop 22 however, may prove difficult. Specifically, amending Prop 22 requires a seven-eights (87.5%) vote in each chamber of the California State Legislature and the governor’s signature. This will likely prove to be a very high hurdle for prospective changes to the law.

Prop 22 is believed to have a nationwide impact as gig companies seek to maintain their contractor based model and other businesses explore gig-like operations. Since California is often viewed as a leader in progressive changes to the law, it is likely that other states will review the interplay between AB5 and Prop 22 battle when looking to implement similar laws in their state. It also draws attention to the effectiveness of the initial law; AB5 remains highly controversial as exemptions continue to pile up and many continue to call for its repeal.

For now, app-based rideshare and delivery drivers may operate in California as independent contractors and gig companies can breathe a sigh of relief as they avoid the more onerous and expensive requirements of AB5.