3 Takeaways As Gig Cos. Prevail At Polls On Worker Status

Law360 (November 4, 2020, 8:46 PM EST) -- California voters decisively approved a ballot measure Tuesday that exempts Uber, DoorDash and certain other gig economy businesses from the state's landmark worker classification reform, complicating a heated national battle over who must be treated as an employee.

As the gig companies take a victory lap following their record-breaking $200 million outlay on the campaign to pass Proposition 22, Tuesday's vote could ripple through debates in other states over how to assess employee status and may spur further changes to California's reform, known as Assembly Bill 5.

"I worry about what this portends for the future," said Lichten & Liss-Riordan PC partner Shannon Liss-Riordan, who has filed numerous suits accusing gig and other businesses of misclassifying their workers as independent contractors.

Here are three takeaways from the vote.

Results Hard To Interpret

Proposition 22 allows app-based ride-hailing and delivery companies to continue treating their workers as independent contractors, effectively carving them out of A.B. 5, a 2019 law that adopted the so-called ABC Test for worker classification.

Independent contractors don't enjoy the same legal rights and benefits as workers classified as employees, such as wage minimums and unemployment protections. Under A.B. 5, California businesses seeking to classify workers as contractors must prove each of three things, including that the workers perform work outside the company's main business.

Nearly 60% of voters backed Proposition 22 following a hard-fought battle between workers' advocates and gig businesses. The companies argued a "no" vote would force them to cut ties with thousands of drivers and curtail their independence, while opponents said the measure would absolve gig businesses of legal liabilities to poorly paid workers.

Richard Meneghello, an employment attorney with management-side firm Fisher Phillips, said the margin of victory showed that the businesses' message landed.

"I think the average person recognizes that the gig economy is unlike anything that we're used to," said Meneghello, who focuses on the gig economy. "People who choose to pick up gig work do it because they want the flexibility and don't necessarily want that massive safety net that comes with employment."

Liss-Riordan had a different theory: The gig businesses leveraged their financial might to buy an exemption.

A business coalition comprising ride-hailing services Uber and Lyft and delivery companies DoorDash, Instacart and Postmates spent upward of $200 million to make "Yes on 22" the costliest-ever ballot campaign in California, flooding the airwaves with ads and urging app users to oppose the measure. This sets a dangerous precedent, Liss-Riordan said.

Ballot initiatives as a concept arose "to help the little guy be heard, back in an age when legislators were not paying attention to the little guy," Liss-Riordan said. "Now, the gig economy really turned that on its head."

'Hybrid' Model Could Become an Example

California is often a workers' rights trailblazer, adopting novel legal reforms that other liberal-leaning states and cities later pick up. Already, workers' advocates are lobbying lawmakers in New York and elsewhere to adopt measures akin to California's A.B. 5. But Proposition 22's success could send reform-minded lawmakers down a different path.

Though the measure's success spares gig businesses the expenses and legal liabilities they would incur with employees, it provides workers some protections and benefits. Among other things, Proposition 22 requires gig businesses to pay workers 120% of the minimum wage for their active time, provide partial stipends for workers to buy health care through the state's marketplace if they hit certain hours minimums, and cover workers who are hurt while using their apps.

Proposition 22's success could lead lawmakers in other states and cities to provide gig workers scaled-down benefits instead of making businesses treat them as full-fledged employees, Meneghello said. The protections Proposition 22 provides "may not be as robust as some workers' advocates would have wanted," he said, but they may be more palatable for lawmakers wary of adopting a measure California voters just slapped down.

"This could be the dawn of state legislatures negotiating this new approach," Meneghello said.

Charlotte Garden, a Seattle University School of Law professor who studies the intersection of work and technology, said she's skeptical that lawmakers will compromise with the gig companies.

Some cities, such as New York and Seattle, have provided gig workers with pay floors, paid sick time or other benefits without getting into the classification debate. But proposals to let gig businesses off the hook for employer liability if they cough up modest benefits haven't caught on with lawmakers, Garden said.

"Minimum standards requirements that don't make a concession on status … will continue to pass in liberal-leaning cities," she said. "I think the 'compromise' version is less likely."

A.B. 5 Could Again End Up on Hot Seat

A.B. 5 has been controversial since it was first put up for debate in the California State Legislature. Numerous businesses and trade associations lobbied lawmakers for exemptions from the far-reaching bill, and a few dozen succeeded. Now that California voters have carved out the law's main target, other businesses and workers may push to escape A.B. 5's reach.

The legislature has already refined the law once since its 2019 passage, adding exemptions for home inspectors, various music industry roles and several other jobs, and nixing a provision that made businesses treat freelance writers and photographers as employees if they topped 35 submissions a year.

If others push for exemptions, "it's going to be very difficult for the California legislature not to address A.B. 5 and its fundamental precepts," said Littler Mendelson PC partner Michael Lotito, who co-leads the management-side firm's workplace policy shop.

"The people of California have given an overwhelming verdict with regard to A.B. 5," he said.

Liss-Riordan conceded that California embarked on a slippery slope when it exempted certain workers from A.B. 5.

Liss-Riordan is based in Massachusetts, which uses the ABC Test to confer minimum wage and overtime protections. Unlike California, the Bay State has "stayed firm" and refused to enact carveouts, she said. Still, the workers-side attorney doubts California will slip any further.

"I don't think the California legislature is going to turn its back on what it did in A.B. 5," she said.

--Editing by Aaron Pelc and Emily Kokoll.

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