The disposition towards ‘informal economy’ workers has been laissez-faire. But this seems to be changing as gig work takes over. The world is watching with interest
By Siddharth Pai
The US has many peculiarities in its election processes that would befuddle civics students elsewhere. For instance, during a US presidential election, other referendum choices, completely unrelated to the election, are on the ballot in each state.
During last year’s presidential election, California’s ballot included a referendum called ‘proposition 22’ on the ballot, supported by firms such as Uber, DoorDash and Lyft. These businesses use ‘casual’ workers and had threatened to leave the state had the measure not been voted in. They wanted their drivers classified as contractors, not employees.
California is a left-leaning state and voted overwhelmingly for Joe Biden. Yet, proposition 22 made it through. The gig-economy ride-hailing apps spent over $200 million while labour unions opposed to it could only muster about a tenth of that sum. The bigger money paid off. California’s voters were bombarded with emails, fliers, text messages and video spots claiming that the proposition was fair to gig-economy drivers. Over 58% of California’s voters endorsed proposition 22, classifying drivers at these services as contractors.
The paradox of liberal Californians voting for right-leaning referendums is not new. Before 2020’s proposition 22, a 1994 proposal in California removed the right of ‘illegal aliens’ to seek recourse to public funds. This meant that even if non-US-citizens had been paying income taxes or real estate levies, they (and their children) would be ineligible for public benefits such as basic schooling, which is largely free in the US, as well as healthcare and other social benefits. It’s hard to imagine why a left-leaning electorate would deny taxpayers their rights in a country founded on the principle of ‘no taxation without representation’. Maybe highly targeted election-eve marketing is effective after all.
According to the National Employment Law Project (NELP), someone driving an average of 35 km every hour in a 40-hour workweek would make $287 less per week if proposition 22 passed, in addition to healthcare and other reductions. The NELP says a ‘permanent underclass of workers’ has been created. In an almost comical irony, emboldened by this election victory, gig-economy companies like Uber and Lyft have accelerated a push for what they call a ‘third way’ of working, a classification of independent gig workers who receive limited benefits without gaining employee status.
After proposition 22, workers for these gig companies in California do not have the same rights as regular employees to paid sick days, overtime pay, unemployment insurance or a workplace covered by occupational safety and health laws. California’s Assembly had tried to head this off earlier with a law of its own called Assembly Bill 5 (AB 5), which would have guaranteed these rights, but which ended up overturned by proposition 22.
In a continuing see-saw battle, a coalition of ride-hail drivers and labour groups sued in January 2021, arguing that proposition 22 is itself unconstitutional. California’s Supreme Court refused to hear the case, and it seemed as if this ‘permanent underclass’ of workers had now been forever created with no more recourse to law. But the group re-filed its petition in a lower court in California, handing the gig-economy firms a fresh challenge. On Friday evening, a California judge ruled that the proposition 22 ballot initiative violated the state’s Constitution.
The decision by Judge Frank Roesch of California Superior Court in Alameda County had three findings. The first was that proposition 22 carved gig workers out of the pool of employees eligible for workers’ compensation in the event of an injury or other workplace incident. But under California’s Constitution, the State Legislature has a constitutional right to set and control workers’ compensation.
Second, proposition 22 included several eyebrow-raising provisions designed to prevent the legislature from making significant changes to the law in the future. For instance, it required the legislature to reach a seven-eighths (87.5%) majority to make any changes to the law, a supermajority that is clearly unattainable almost anywhere in in the world where a democratic system exists. It also requires that any changes be ‘consistent’ with proposition 22, blocking the legislature from altering or reversing the law. Since the workers’ compensation issue identified by Judge Roesch in the first finding above could not be separated from the rest of proposition 22, he found that ‘the entirety of proposition 22’ could not be enforced.
The California fight is starting to be repeated in other states. These could include Massachusetts and New Jersey, where state regulators have made gig-economy firms uncomfortable, or New York or Pennsylvania, where courts have rejected their argument that workers run their own independent businesses as contractors. In August, the companies filed for a similar ballot push in Massachusetts, where gig-worker treatment is already under tight scrutiny.
The rest of the world will watch with interest. Historically, the disposition towards ‘informal economy’ workers has been laissez-faire. But this seems to be changing as gig work takes over. In India, for instance, it is worthwhile to see an attempt at ensuring that food delivery boys and ride-hailing drivers get some social security benefits under a revised labour code.
What next? Will Big Tech’s money win the day? Or will concerted legal challenges see gig employees’ rights protected? I am torn. On the one hand, light regulation is good for business. On the other, it leaves room for exploitation.