Uber and Lyft Drivers in California Will Remain Independent

OAKLAND, Calif. — Drivers and other workers for so-called gig economy companies in California will not become their employees.

California voters carried Uber and Lyft to victory, overwhelmingly approving Proposition 22, a ballot measure that allows gig economy companies to continue treating drivers as independent contractors.

Uber, Lyft and the delivery service DoorDash designed the measure to exempt the companies from a state labor law that would have forced them to employ drivers and pay for health care, unemployment insurance and other benefits. As a concession to labor advocates, the initiative offers a wage floor and limited benefits to drivers.

The Associated Press projected early Wednesday that Prop. 22 had carried 58 percent of the vote. Prop. 22 faced the strongest opposition in San Francisco, where Uber and Lyft are headquartered, with more than a 19 point deficit.

The vote resolves the fiercest regulatory battle Uber and Lyft have faced and opens a path for the companies to remake labor laws throughout the country. The fight pit labor groups and state lawmakers against ride-hailing and delivery start-ups that spent $200 million in support of the measure.

In voting to support Uber and Lyft, Californians rejected the principles outlined in a 2018 state Supreme Court ruling and enshrined in a 2019 state law that said workers who perform tasks within a company’s regular business — and are controlled by the company and do not operate their own firms — must be treated as employees. Under Prop. 22, gig workers are exempted from these rules and can continue to work independently.

The Yes on Prop. 22 campaign, backed by Uber, Lyft and DoorDash, celebrated the victory. “California has spoken,” Geoff Vetter, a spokesman for the campaign, said in a news release. “Prop. 22 represents the future of work in an increasingly technologically-driven economy.”

Uber’s stock rallied almost 3 percent on Tuesday as polls suggested Prop. 22 was likely to pass. Lyft’s stock was also up 7 percent.

Uber’s chief executive, Dara Khosrowshahi, thanked drivers for the win in a late-night email. “The future of independent work is more secure because so many drivers like you spoke up,” he wrote. He said Uber would make the new benefits promised by Prop. 22 available “as soon as possible.”

“The last 14 months in California have been the most critical point on this issue,” said Bradley Tusk, a venture capitalist who advised Uber on political issues during its early years. Emboldened by the election, Uber and other gig economy players will likely pursue federal legislation to formally enshrine gig work in the nation’s labor laws.

The passage of Prop. 22 is a bitter loss for state and local officials who have long seen the ride-hailing companies as obstinate upstarts that shrugged off any effort to make them follow the rules.

Many local officials believed California was too gentle for too long when it came to regulating Uber and Lyft and naïve about how powerful and influential the ride-hailing companies would quickly become.

“For all too long, Uber and Lyft banked on the timidity of public officials throughout the country,” said Dennis Herrera, the city attorney of San Francisco. Mr. Herrera has sued Uber and Lyft in an attempt to force them to employ their drivers, and the litigation continues. “They said, ‘We’re not going to ask permission, we’ll sort of ask for forgiveness after the fact, once the horse has left the barn.’”

Uber and Lyft launched in the early 2010s with just a handful of drivers, resembling car pool services more than professional fleets. While Uber initially attempted to mimic black car services, it quickly joined Lyft in promoting the idea that drivers were drawn to the apps by the novelty of gig work rather than the promise of traditional employment.

Transit officials and taxi companies warned that the drivers lacked professional certification and were not subjected to background checks. Uber and Lyft argued that they were primarily technology companies, not transportation companies, and should not be forced into the burdensome requirements of licensing, safety checks and employment. The California Public Utilities Commission stepped in, setting baseline safety requirements but allowing Uber and Lyft to avoid hiring drivers.

Still, the employment issue persisted. By 2015, the state labor commissioner ruled that drivers were “integral” to Uber’s business model, but the ruling allowed just one driver to be classified as an employee.

Still, three years later, the California Supreme Court made a sweeping and unanimous ruling in a case known as Dynamex. Under the three-prong employment test proposed by the court, Uber and Lyft drivers appeared to be employees, not contractors.

The ruling prompted concern among gig economy companies, but they did not move to reclassify their workers. Lawmakers saw an opportunity to regulate a defiant industry.

ImageAssemblywoman Lorena Gonzalez at a rally in 2019.
Credit…Rich Pedroncelli/Associated Press

“The problem is this: Uber and Lyft have neglected not just labor laws but every law in the book,” said Lorena Gonzalez, the California Assembly member who drafted the state’s new labor law. “The only reason we were able to get A.B. 5 is because of Dynamex. The Supreme Court created such a stark, clear rule. It freaked out business as much as it encouraged labor.”

In September 2019, the state legislature approved Ms. Gonzalez’s bill, and the law took effect in January.

Under the new law, Uber and Lyft drivers were employees. But nothing changed. The companies continued to treat them as independent contractors and vowed to take their fight to the ballot. In May, Mr. Herrera, joined by the state attorney general and the city attorneys of Los Angeles and San Diego, sued Uber and Lyft in an effort to enforce the law.

When the court ordered the companies to immediately hire their drivers, Uber and Lyft threatened to shut down in California rather than comply. They also funneled millions more into the ballot fight, making Prop. 22 the most expensive initiative in the state’s history. An appeals court granted Uber and Lyft a small reprieve, allowing them several months to comply with the order.

Although the lawsuit will continue, Prop. 22 will drastically reduce its scope. The state will continue to seek penalties for the time between January and the certification of the election results, when it says Uber and Lyft flouted the law.

“You look back and you say, I wish it didn’t need to come to this, that people would have started adhering to the law,” Mr. Herrera said. “I thought it was important to fight for the rights of workers and the rights of consumers.”

With the gig work model cemented in California, Uber and other gig economy companies are expected to pursue federal legislation that would protect them from similar employment laws in other states.

The passage of Prop. 22 is a setback in the yearslong effort to regulate tech giants like Uber, but comes as federal lawmakers and officials are increasingly eager to take on big tech. Members of Congress in both parties support cracking down on social media companies and reining in the likes of Amazon and Google. Uber and its gig economy peers could be caught in that anti-tech sentiment.

“We can’t just allow them to control what the future of work looks like,” Ms. Gonzalez said. “Somebody has to stand up for the future of workers.”