One of the most important changes to hit California’s labor market is the growth of the so-called “gig economy.” The gig economy embraces many workers who prefer to remain independent and to work from home. In 2019 the California legislature passed Assembly Bill 5, a law that tightened the rules for classifying independent contractors. This law was intended to make companies who hired members in the gig economy treat these people as regular employees, provided health care benefits, retirement benefits. The companies that relied on gig workers, such as Uber, Lyft and Door Dash, responded with Proposition 22, a proposal that was intended to lift many of the protections put in place by Assembly Bill 5.
What happened?
The companies that objected to the provisions of Assembly Bill 5 first turned to litigation, but their efforts were rebuffed in Dynamex Operations West, Inc. v. Superior Court of Los Angeles. The court reasoned that if a company controlled someone’s compensation and working conditions, those people should be considered as fulltime employees and should be eligible for health, retirement and disability benefits. The employers in the gig economy next turned to legislation. Proposition 22 was presented to the electors of California as a means of effectively repealing AB 5, and more than $200 million was spent on the campaign to pass it.
California voters agreed, and Prop 22 passed. The passage of the law was a significant victory for employers. By exempting independent employees from the requirements of AB 5, Prop 22 freed employers to hire independent contractors without the need to offer them fringe benefits, especially health insurance. Labor groups viewed the bill’s passage as a significant defeat for their efforts to gain protection for gig workers.
What’s next?
Most observers think that a long time will be required to negotiate new rules for the gig economy. California’s voters do not seem willing to provide improved working conditions and benefits for gig workers. Despite California’s reputation as a liberal state, its voters do not appear willing to rewrite the rules for the gig economy. As the debate continues, employers will need to rely on experienced labor lawyers to guide them through the rapidly changing gig economy.