The recent US elections were some of the most hotly contested and momentous in modern history, particularly when it came to the presidential race. On election day, Californians also headed to the polls to vote in another fiercely competitive ballot measure which could change the nature of the gig economy throughout the world.

Prop 22, formally titled ‘Exempts App-Based Transportation and Delivery Companies from Providing Employee Benefits to Certain Drivers’ sought to definitively resolve the long-held debate over driver entitlements in California. Results returned a convincing victory in favour of Prop 22, with 58.65% of the vote. The ballot measure was billed as a balancing of the competing interests of certain gig economy drivers (drivers) and the platform providers such as Uber, Lyft and DoorDash (platforms) and accordingly is being considered as a solution to similar debates in other jurisdictions grappling with this issue, including here in Australia.

Are gig economy workers employees or contractors?

Most organisations have been forced to grapple with the question of whether a worker is properly categorised as an employee or contractor at one time or another. The effect for businesses can be substantial, with entitlements such as personal and sick leave, superannuation, unfair termination protections and, in the USA, health insurance only attaching to employees and not contractors. Just as information technology allows solutions to be promulgated at scale, it also multiplies the opportunity for drivers to fall into this legal grey area and the outcome could have a considerable impact on the platforms’ businesses.

In Australia, the predominant position is that gig economy workers are properly categorised as independent contractors. In mid-2019, the Fair Work Ombudsman finalised its investigation into whether Uber Australia Pty Ltd was involved in ‘sham contracting’, ultimately deciding that drivers were not employees and that no further compliance action would take place. In April 2020, a full bench of the Fair Work Commission (FWC) ruled that UberEats drivers are independent contractors and ineligible for employee protections, a ruling that aligned with comparable cases before the FWC in 2017 and 2018. Workers’ rights bodies continue to contest this position and advocate for greater benefits and protections to be provided for gig economy workers, who in many instances are some of the lowest paid workers in the economy.

In California – which is the home of Silicon Valley and the global epicentre of the IT platforms which spawned the gig economy – similar debates have raged with outcomes which depart from the Australian approach.

Despite some contention, the position under Californian law appeared to be resolved by their Supreme Court’s decision in Dynamex Operations West v Superior Court of LA and Charles Lee et all (2018). That decision held that the company hiring workers bears the burden of establishing that the worker is an independent contractor as opposed to an employee. This burden must be satisfied with reference to the “ABC test”, where the hiring company must satisfy that the ‘worker’:

1. is free from the control and direction of the hiring company when it comes to performance of the work, both in contract and in reality;
2. performs work that is outside the usual course of the hiring company’s business; and
3. is customarily engaged in an independently established trade or business of the same nature as the work performed.

Unless the hiring company satisfies each limb of the ABC test, the worker will be considered an employee. Following the ruling, Californian legislators introduced Assembly Bill 5 (AB 5) which codified and expanded Dynamex to apply across Californian state law. AB 5 passed in September 2019 and came into effect on 1 January 2020. In response, major ride share operators Uber and Lyft threatened to withdraw from the Californian market and began their lobbying effort on Prop 22.

California’s Proposition 22 remedy to the gig economy and workers

The official ballot summary provided to voters summarised the effects of Prop 22 as follows:

• Classifies drivers for app-based transportation (rideshare) and delivery companies as “independent contractors,” not “employees,” unless company: sets drivers’ hours, requires acceptance of specific ride and delivery requests, or restricts working for other companies.

• Independent contractors are not covered by various state employment laws – including minimum wage, overtime, unemployment insurance, and workers’ compensation.
• Instead, independent-contractor drivers would be entitled to other compensation – including minimum earnings, healthcare subsidies, and vehicle insurance.

• Restricts certain local regulation of app-based drivers.

• Criminalizes impersonation of drivers.

In effect, Prop 22 excludes major platforms from the application of AB 5. Drivers will be taken to be independent contractors so long as certain practices are maintained, such as companies not setting work times, not requiring drivers to accept gigs, and allowing drivers to work other jobs (including with competitors).

In place of the employee protections that drivers would otherwise receive under Californian and Federal employment laws, Prop 22 enacts its own labour and wage policies for the drivers of applicable platforms. Under Prop 22, drivers end up somewhere between a traditional arms-length contractor relationship and the employer-employee relationship.

Independent contractor plus benefits

Under Prop 22, drivers receive the benefits set out below. Key to understanding these benefits is the concept of ‘engaged time’ or ‘engaged hours’, being the time between a driver accepting a gig request and completing that request. Time spent waiting for gigs to come through, or spent travelling to desirable locations, is not counted as engaged.  

Compensation

Instead of an entitlement to the minimum wage, platforms must provide an earnings floor for eligible drivers which is set at 120% of the Californian minimum wage and applied in respect of a driver’s engaged time. Drivers are paid the difference between their net earnings (excluding tips and road fees) and this floor. Platforms will also pay 30 cents per mile driven during engaged time. Both these compensatory commitments are in addition to whatever a driver earns for a given trip or delivery, but of course only accrue so long as the driver is ‘engaged’.

Insurances

Prop 22 requires platforms to provide occupational accident insurance for medical expenses and lost income resulting from injuries incurred while ‘online’ for that company (not just while engaged). Platforms must also provide accidental death insurance for the benefit of a driver’s spouse or dependents in the case that a driver dies while online for that company. 

Contract and other protections

Prop 22 also mandates that platforms enter into valid contracts with their drivers and prohibits them from terminating such contracts without valid reason or a process of appeal. Anti-discrimination protections for drivers are also enshrined in Prop 22.

Healthcare subsidy

Platforms are now obliged to provide healthcare subsidies on a quarterly basis, at levels dependent on how much engaged time a driver has with them per week. Drivers with an average of between 15 and 25 engaged hours per week over the quarter are entitled to at least 50% the average Affordable Care Act contribution, whereas those over 25 engaged hours are entitled to at least 100% of that contribution.

In addition to these worker benefits, Prop 22 also requires applicable platforms to develop policies and deliver training with regard to sexual harassment, road safety and food safety. Platforms are also obliged to carry out criminal background checks and enforce zero-tolerance policies when it comes working under the influence of drugs or alcohol.  

Potential influence of Prop 22 to Australia's gig economy

The passage of Prop 22 has largely been heralded as a win for the platforms. While Prop 22 does provide some enhanced benefits and protections for drivers, they pale in comparison with the exposure platforms would face if drivers were entitled to employee protections. It is also being touted as a model for other US states, with a similar lobbying effort already commencing in the US state of Illinois.

Although Australian law is more settled, Governments in all jurisdictions are examining whether existing laws are fit for purpose. A survey by the Transport Workers’ Union in September 2020 found that food delivery drivers earned an average of $10.42 per hour after expenses, well below the minimum wage in Australia. The NSW parliamentary inquiry also heard that delivery rates were cut during the pandemic, despite demand for food delivery services surging at the same time. More recently, we’ve seen the tragic deaths of bicycle couriers whose dependents were not entitled to benefits under the statutory workers’ compensation scheme, which applies to employees in the economy.

If Governments decide to intervene to expand benefits for gig economy drivers on the back of such inquiries, we will likely see platforms advocating for the Californian model. Whether Prop 22 achieves the goal of striking the right balance between the interests of platforms and drivers remains to be seen but no doubt drivers, platforms and legislators in Australia and around the world will be watching intently.

Authors: Tim Gole, Mark Ferguson and Bryce Craig.