Stanford’s William Gould on Proposition 22 and the De-Regulation of the Gig Economy

One of California’s many propositions up for consideration by voters this year is Proposition 22, which would classify app-based, “gig economy” drivers as independent contractors and not employees or agents—reversing California law. Here, Stanford Law Professor William Gould discusses the existing law, the proposition, and the consequences of a change.

First, can you give us some history on the regulation of gig workers in California?

In 2018 the California Supreme Court held in Dynamex Operations West, Inc. vs. Superior Court of Los Angeles that all workers, including gig workers, were presumptively employees, meaning that they get the benefits the California Legislature has provided, i.e. minimum wage and overtime, social security, sick pay and family leave, unemployment compensation, workers compensation, reimbursement for travel expenses (in the case of drivers, that might include registration, insurance, licensing, car depreciation) and protection against discrimination. The Court said that workers were employees so long as one of the following criteria were met (1) they were under the control of the employer; (2) the worker was performing work on the company’s business: (3) the workers were not independent trades people.

And the California Legislature followed up with a new law, correct?

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Stanford Law Professor William B. Gould, IV

Yes. The Legislature codified these standards, carving out exceptions when workers were self-sufficient or idiosyncratic.  Assembly Bill 5 (AB 5), was signed in September 2019.

What was the background for the California Supreme Court case and Legislature passing AB 5?

The Court and Legislature took these steps because, they found, employers had mis-classified employees as independent contractors, a factor in increasing inequality (saving the gig employers 30 cents on the dollar) as the latter enjoy none of the benefits described above. Furthermore, the practice raids the public treasury. One study noted that Uber and Lfyt would have paid $413 million between 2014 and 2019 into California’s unemployment compensation fund—they paid nothing.

But both the Court’s ruling and the legislation (AB 5) go far beyond the gig economy—impacting workers who are independent contractors in other fields. AB 5 tightened the definition of employment status and restricted the independent contractor category, while also exempting many such as attorneys, real estate agents, and musicians. And more exceptions were established in 2020.

What has happened since passage of AB 5 and the Court ruling?

Uber and Lyft defied the law, refused to obey it (much like the South did against Brown v Board of Education in the ‘50s).  These startups’ well-heeled investors are one of the main points of resistance— and provided the money designed to defeat it at the ballot and in the courts.

What will Proposition 22 do?

Proposition 22 would make the law inapplicable to the delivery companies—companies that have mustered nearly $200 million to drum up support for this proposition, outspending their opponents 50 to 1 and making this the most expensive proposition race in California history.

If Proposition 22 passes, it will give these gig workers 30 percent of reimbursement for car expenses (half of what employees get), about 70-80 percent of medical care for more senior workers, 120 percent of the minimum wage as calculated without compensation for waiting time as employees get under the labor law, and a promise to develop sexual harassment procedures. Without any of the other features of the employment relationship, this represents second-class status.

So, a proposition would undo California law?

Yes. Proposition 22 would reverse the unanimous Supreme Court decision and law passed by the California Legislature. It should be noted that this reversal is being advocated for and financed by a group of Silicon Valley investors— at the expense of a new precariat of Black, brown, and immigrant workers, many gig drivers, operating at subminimum wages.

Would the California have any recourse?

The poison pill of Proposition 22 is that the Legislature can reverse it only with a seven-eighths majority—making it virtually impossible to reverse, more difficult than a constitutional provision. Even the paltry benefits for an expanding underclass cannot be reversed. So, a yes vote for proposition 22 enhances inequality in an age of inequality—and for generations to come.

William B. Gould IV, Charles A. Beardsley Professor of Law, Emeritus at Stanford Law School, is a prolific scholar of labor and discrimination law who has been an influential voice in worker–management relations for more than fifty years. For more on this, read his op-ed in the Hill.

Gould served as Chairman of the National Labor Relations Board (NLRB, 1994–98) and subsequently Chairman of the California Agricultural Labor Relations Board (2014-2017). He has been a member of the National Academy of Arbitrators since 1970. Early in his career, he served as a consultant to the EEOC and lead counsel on key employment discrimination cases. His most recent publication, A Primer on American Labor Law (6th edition. 2019), addresses many of the issues raised in today’s decision.