Home / Opinion / Columns /  The California vote that went against its gig workers

During a US presidential election, other referendum choices are also on the ballot in each state. Given this year’s circus, with the incumbent’s refusal to accept defeat, most of these issues, some of them pivotal, got relegated to the backseat. Take California’s 2020 Proposition 22. It was critically important to firms such as Uber and Lyft. These gig-economy businesses that use “casual" workers had threatened to leave the state had the measure not been voted in. It wanted its drivers classified as contractors and not employees.

California is a left-leaning state and voted overwhelmingly for Joe Biden. Yet, Proposition 22 made it to the ballot. Mint reported last week that gig-economy ride-hailing apps spent over $200 million to see Proposition 22 through. Labour unions opposed to it could only muster about a tenth of that sum. The bigger money paid off. Over 58% of California’s voters opted to continue classifying drivers at these services as contractors.

Employee classification would have given rise to a slew of labour rights that today’s gig workers, as “independent contractors", do not enjoy. Workers for these gig companies in California will not have the same right as other 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. According to the LA Times, one lawmaker, who wrote AB 5 and opposed Proposition 22, said: “Instead of paying their drivers, gig-corporations forged a deceptive $204-million campaign to change the rules for themselves and provide their workers with less than our state laws require."

California’s voters seem to have a curious inclination to set right-wing precedents by adopting state-level propositions at the ballot. Smart or misleading campaigns run before elections tend to sway voters’ opinions in this otherwise left-leaning state. This year, gig companies put out a message that they would pay their contractors more than the minimum wage. This appears to have caught voters’ attention and led them on. They were bombarded with emails, glossy fliers, text messages and video spots. The truth, however, according to the National Employment Law Project (NELP), was that someone driving an average of 35km every hour in a 40-hour workweek would make $287 less per week if Proposition 22 passed. This is in addition to a slew of healthcare and other reductions. The NELP says a “permanent underclass of workers" has been created.

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 for the properties that they lived in, 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 an electorate that is left-leaning would deny taxpayers their rights. But then, election marketing has proven itself effective.

The day after the 1994 proposition was approved by the state’s voters, several groups filed federal lawsuits against it. A US federal district court judge issued a temporary injunction against the state of California, forbidding the enforcement of that proposition. Another federal judge issued a permanent injunction, pending a trial. The state of California asked in 1997 that the trial be dismissed and the injunction dropped, on the grounds that US immigration law had changed in the meantime. The federal court left the permanent injunction standing.

Coming back to Proposition 22, equity markets have reacted positively. For instance, Mint reported that despite suffering losses, Uber’s stock has managed to emerge largely unscathed (bit.ly/2Ivarft). Uber’s loss before interest and tax had deepened to $625 million in this year’s third quarter. Its sales declined 18% to $3.1 billion, even as the pandemic continues to dampen travel spend. Its business prospects would certainly have been much worse if Uber hadn’t won a reprieve from California’s electorate.

Gig businesses will take heart from the victory in California and hope to replicate this success across the US (and I daresay beyond its shores). Emboldened by the result in California, Uber and the others will move similar legislation in other US states. These could include New Jersey and Massachusetts, where state regulators have made them uncomfortable, or New York or Pennsylvania, where courts have rejected their argument that workers run their own independent businesses as contractors.

In India, we are somewhat isolated from such issues. Our disposition towards “informal economy" workers has had laissez faire attitudes. It’s thus a surprise to see an attempt at ensuring that food delivery boys and ride-hailing drivers get some social security benefits under a revised labour code. Whether gig employers will resist this remains unknown.

What next? Will there be a replay of 1994’s events with Proposition 22 being challenged in a national court? Civil rights and labour unions have vowed to initiate cases. Or will Big Tech’s money and marketing pizzaz win the day? I am torn either way. On one hand, light regulation is good for business. On the other, it leaves room for exploitation.

Siddharth Pai is founder of Siana Capital, a venture fund management company focused on deep science and tech in India

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