An industry rep worth more than Ford Motor Company, General Motors, and Fiat Chrysler combined (LAO voter guide) walks into a bar, puts down $200 million dollars and proposes a state-wide constitutional amendment . . . we’re not quite sure how the end of that joke goes, but it’s no laughing matter that Prop 22 will be the most heavily financed proposition in California’s history. The “no” campaign, funded by a few workers unions, is set to be outspent by nearly 20 to 1.
Why the big bucks? Because if it passes it will mean that a set of industry lobbyists will have successfully overruled both the California Supreme Court and the entire California Legislature to create for themselves a favorable carve-out permitting them to do that which other industries cannot: circumvent California’s strict labor laws. So, while the remaining California market will need to comply with expensive worker protections this industry will not. That’s no easy task.
Specifically, the California Supreme Court’s Dynamex decision provided a stricter test for qualifying an employee as an “independent contractor.” The legislature then passed AB-5 that clarified the rule even more and removed any doubt that so-called gig economy workers must be treated as employees. That did not sit well with Uber, Lyft and other gig-employers that have built a multi-billion dollar industry based in no small part on avoiding expensive government regulations. Key among those are California’s strict employment rules.
The benefit for an employer of classifying a worker as an independent contractor rather than an employee is huge. First, it usually means the employer is not legally responsible (read liable) for the independent contractor’s bad acts. That is important considering Uber alone reported over 3,000 sexual assaults committed against its riders in 2019. It is hard to determine the number of traffic accidents in which Uber drivers have been involved because reporting is opaque, but several thousand occur each year in California alone. limiting the recoveries that injured consumers can get is a big “win” for gig-economy giants – of course, it’s not-so-great if you are among the thousands of folks maimed or traumatized by an Uber driver. Nor is it particularly fair to other service-sector businesses that do have to shoulder such liability.
Second, it means the employer can avoid paying all payroll taxes and allows the employer to skirt most employment laws (overtime, mandatory breaks, minimum wage, etc.). That is a big “win” for most employers given California’s strict employment laws. For a discussion of the pros and cons of working as an independent contractor, checkout this article.
As the preceding article states, there are benefits – mostly flexibility and independence – for a worker classified as an IC. Prop 22 supporters often talk-up those benefits. And, they argue, Prop 22 purports to pay ICs that qualify at 120% of the minimum wage, provides for no more than a 12-hour workday, provides a sliding-scale “stipend” to partially pay for the lowest level of Obamacare health insurance, and mandates certain insurance requirements. What could go wrong? Perhaps we are just too cynical – maybe these large behemoths are spending $200 million to help workers. Hmm, let’s investigate that…
One of the best analysis pieces we have seen on Prop 22 was done by two economics professors from the UC Berkeley Labor Center and published in conjunction with the UCB Center on Wage and Employment Dynamics, UCB Institute for Research on Labor and Employment, and the UCB Center for Labor Research and Education. https://laborcenter.berkeley.edu/the-uber-lyft-ballot-initiative-guarantees-only-5-64-an-hour-2/ The group is certainly “pro labor” and “pro union” but they lay their “math” out convincingly in a very thoroughly supported non-partisan study that offers this stunning conclusion:
“The initiative claims drivers will receive a guaranteed pay equal to 120% of the minimum wage (that would be $15.60 in 2021, when the California minimum wage will be $13). Our review of the initiative leads to a very different estimate. After considering multiple loopholes in the initiative, we estimate that the pay guarantee for Uber and Lyft drivers is actually the equivalent of a wage of $5.64 per hour.” (Id. emphasis in original).
The study reaches this conclusion by considering the reality that as ICs, drivers do not get paid for “wait time” (they would as employees), need to pay their own vehicle expenses and upkeep, receive only partial “stipends” toward mandatory health insurance costs, and must pay their own payroll taxes. Id. Of course, with $200 million to play with the “yes” folks offered their own paid counter-studies. But, in a recent rebuttal piece, the same U.C. Berkeley Labor Center recently – in our view – absolutely destroyed a Lyft-funded study from Cornell University and stood by its prior conclusion that under Prop 22, independent contractor drivers could earn as little as $5.64 per hour – roughly 1/3 of the state’s minimum wage.
We think this analysis should give Californian’s serious pause. Sure, we all like cheap on-demand drivers, but at what cost? Do we really want to be perpetuating that level of poverty so that we can exploit cheap fares? So that Uber, Lyft and the like can maintain their mammoth stock valuations? Moreover, the gig behemoths have made sure that their investment in Prop 22 is indefinite — There is an impressive “poison pill” of sorts in the Proposition. It can only be amended by vote of the entire California (i.e. by subsequent proposition) or by a truly eye-popping 7/8 super-majority of the legislature and then, only if the change “is consistent with, and furthers the purpose of, Proposition 22.” Wow.
Whatever your answer to that ethical dilemma we posed, we urge you to vote “No” for this proposition. We feel that even if you feel that the market should set all rates for employees without any safety net, there is zero justification for allowing well-heeled special interests to pick-and-choose industry winners and grant them “outs” from California’s strict employee protection laws. Concededly, we support those employment laws, but even if you do not, dissembling them for just one industry is a bad idea. Doing so because that industry pumped $200 million into a slick proposition campaign is just awful. It will encourage more special-interest driven breaks for folks looking to make money not through competition, but by gaining a regulatory edge – i.e. avoiding laws that others must follow.
If the public believes, we should roll back employment laws in California they should do so uniformly, for all businesses, ideally – through the legislature. Candidly, we would not support such a move, but it would at least be even-handed (for businesses). However, California’s public policy should not be for sale. We do not use that harsh language lightly. It is difficult to see this Proposition as anything short of that when all three branches – the State’s independent High Court, an overwhelming majority of the legislature, and the State’s top Executive – all support a legislated policy stance only to have wealthy companies override them all. That is not Democracy and we ought not tolerate it.
Solid No
PolitoMuse 