Threat of Rideshare Shutdowns Highlight Driver Classification Laws, Battles; CA AG Opines

By Phoebe Glick

Rideshare users have been seeing ominous alerts about service suspensions since early August. Even earlier than that.

Uber’s push notifications warn that ridesharing in California may be suspended. Lyft’s in-app popup offers a link to a website saying rideshare is at risk of suspension because of “recent actions by politicians.”

What is this impending halt in service about?

Companies like Uber and Lyft represent this closure as necessary restructuring, as new requirements about employee classification mean drastic changes in their business models. However, many worker advocates say it’s a ploy to garner support for a new initiative known as Proposition 22, which would reverse classification requirements.

For years, app-based driving companies like Uber, Lyft, DoorDash, Instacart, and many more have classified drivers as independent contractors. These companies hold that their business is connecting customers to drivers through an app, so they do not directly employ drivers.

Rideshare companies argue that, as independent contractors, drivers are free to make their own hours and enjoy a flexible, self-employed model of work.

Under the independent contractor classification, companies are not obligated to give drivers benefits that regular employees are entitled to, like minimum wage, overtime pay, and healthcare.

This saves companies a significant amount of money— according to a study from the UC Berkeley Labor Center, Uber and Lyft have avoided paying the California Unemployment Insurance tax by classifying drivers as contract workers, saving more than a whopping $413 million since 2014.

That savings is the tip of the iceberg.

Rideshare companies save even more money by denying their workers traditional employee benefits like healthcare or paid sick leave. Instead, drivers are left to handle these expenses on their own, sometimes depending on state or federal aid.

In reference to companies’ lack of coverage forcing drivers to turn to the state, California Attorney General Xavier Becerra remarked, “There’s no reason why taxpayers should have to do what companies are required by law to do.”

Companies are also not required to pay drivers minimum wage; instead, outside publications estimate, drivers make about $9.00 per hour, although the amount varies drastically. This lack of adequate pay from companies leaves severely underpaid drivers struggling.

Edan Alva, driver and worker advocate, says that “people who rely on this job for a living get paid just enough to exist.”

When Alva became sick with the flu in January, he was not able to stop working. He continued to drive with severe symptoms in order to make enough money to pay rent— but by the time he had, he was so sick he physically could not work more. He treated his symptoms at home, unable to afford a doctor visit. Said Alva, as a driver, “any unexpected, sudden expenses can completely derail your life.”

Workers’ rights activists and unions and lawmakers have pushed for drivers to be classified as employees, succeeding in 2019 with the passage of Assembly Bill 5. Under AB 5, app-based drivers are classified as employees and must be given benefits accordingly.

AB5, signed in September 2019, went into effect in January this year. Companies like Uber and Lyft did not comply, so an injunction was issued on August 10, compelling companies to classify their drivers as employees. In addition to filing an emergency appeal to the injunction, app-based work companies banded together to get Prop 22 on the ballot.

Prop 22 would carve out an exception to AB5 so that companies could permanently classify their workers as independent contractors.

There are certain benefits Prop 22 promises— such as minimum earnings and even healthcare and insurance in some cases. Prop 22 promises to maintain flexibility for workers while ensuring a higher quality of life for workers. While these benefits represent important gains in protections for vulnerable workers, there’s a caveat.

Prop 22 benefits hinge on the concept of “engaged time,” or the time a driver spends with a package or person in the car. It does not consider the amount of time a driver spends waiting for rides or driving to those rides.

Recent industry-funded studies have indicated that drivers spend up to 37 percent of their time on transportation apps without a passenger in the car. Under Prop 22, this time would go uncompensated and would not count towards any benefits.

Prop 22’s alternative to minimum wage, the earnings guarantee, depends on a driver’s engaged time. For each engaged hour, drivers would be paid 120 percent of the applicable minimum wage. This sounds attractive only until the math is done.

Researchers from UC Berkeley’s Labor Center estimated that Prop 22’s earnings scheme would actually be equivalent to $5.64 per hour. Their calculations factor in hidden costs for unpaid working time, unreimbursed waiting time, driving expenses like gas and car insurance, and unpaid payroll taxes and employee benefits.

Like the earnings guarantee, Prop 22’s healthcare portion depends on engaged time. Prop 22 guarantees healthcare subsidies based on the average premium for the lowest tier of Covered California plans.

The subsidy is based on, not equal to, the average Covered California premium. Through convoluted wording, the ballot initiative promises drivers a payment equal 82 percent of that average premium if they drive for 25 hours or more of engaged time per week. Workers with between 15 and 25 hours of engaged time would be eligible for a subsidy equal to only 41 percent of the average premium.

Since qualification is based on engaged time, not total time, workers would need to put in more hours than initially implied. For Working Families’ Rigging the Gig report estimates that in order to meet 25 hours of engaged time, drivers would need to work for 39.6 hours per week.

To reach 15 hours, drivers would need to work for about 23.8 hours per week. According to Yes on 22, a website funded by Lyft, Uber, and DoorDash, over 80 percent of drivers work less than 20 hours per week.

Compared to the steep obstacles it sets forth to qualify for healthcare subsidies, Prop 22’s healthcare benefits are deeply underwhelming. Rey Fuentes, Skadden Fellow at the Partnership for Working Families, notes that “for those that do… get coverage, it’s going to be so minimal as to be basically useless.”

Prop 22 also offers a small expense reimbursement (a measly 30 cents per engaged mile) and limited workers’ compensation and disability insurance. It fails to offer anything in the way of paid sick leave, unemployment compensation, paid family leave, or protection from retaliation for workers. Employees are allowed all these benefits under current state and federal law.

Perhaps most damningly, Prop 22 forbids California legislatures from interfering with the precedent it establishes. For example, individual cities or counties could not pass laws granting further rights to drivers. In the same vein, the state would be blocked from protecting workers’ rights to organize.

Prop 22 accomplishes these blocks through lock-in features. In order to pass any amendments— which are required to be “consistent with, and further the purpose of” the act— a 7/8ths supermajority is needed in both houses of the California legislature.

This supermajority is nearly impossible to meet, which is why Prop 22 would essentially allow Uber and Lyft to permanently classify drivers as contractors and deny them their rights.

Such legislation would be hugely financially beneficial to companies like Uber and Lyft. Recognizing this, the companies have launched a huge campaign to pass the initiative in the form of Yes on 22 – Save App-Based Jobs and Services. It’s a coalition funded by Lyft, Uber, and DoorDash, each of whom contributed $30 million to get the proposition on the ballot and to advertise. In total, Prop 22 has $110 million worth of support behind it.

This shows in aggressive marketing moves, like in-app alerts and notifications urging riders to support Prop 22. Driver and worker advocate Edan Alva attests that marketing doesn’t stop there. Alva says that in the course of daily talks with drivers about Prop 22, he realized that “some of the people that I talk to are actually clearly paid to be online” and to support Prop 22.

Alva says that rideshare companies’ tactics have worked— many drivers are legitimately anxious about potential employee classification. Uber and Lyft hold that such a classification would be disastrous, saying that workers would lose flexibility and have to work in shifts.

While these are daunting prospects, many opponents of Prop 22 say that employee classification doesn’t have to impact flexibility. Eric Hatton, a gig economy researcher and professor of sociology, says that Uber and Lyft are “[using] this rhetoric to create a zero sum equation.”

Many employee-classified jobs do allow for flexibility in hours. According to California Attorney General Xavier Becerra, “there’s nothing in California law that requires a company to remove flexibility in order for these people to be classified as employees and get those rights.”

Uber and Lyft also contend that the majority of drivers prefer to be classified as contractors. Alva believes many of these people are misinformed, and prefer contractor status because they’ve fallen for Uber and Lyft’s protestations that employees cannot also have flexibility.

Asks Becerra, “What worker doesn’t want to have access to paid sick leave?” Becerra said. “What worker doesn’t want to have unemployment insurance at a time of Covid-19 crisis? What worker doesn’t want to know that they’ll get paid for overtime if they work 60 hours in a week or 12 hours in a day?”

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About The Author

The Vanguard Court Watch operates in Yolo, Sacramento and Sacramento Counties with a mission to monitor and report on court cases. Anyone interested in interning at the Courthouse or volunteering to monitor cases should contact the Vanguard at info(at)davisvanguard(dot)org - please email info(at)davisvanguard(dot)org if you find inaccuracies in this report.

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