Prop 22: technology companies win in California

Last week, with all eyes on the United States general election, the gig economy lobby was fighting its own battle in California and came out with a win. With 58% of the vote, California passed Proposition 22(“Prop 22”), a legislative initiative allowing Uber, Lyft, DoorDash or Instacart to continue considering their drivers as self-employed persons (independent contractors).

Those companies spent over USD 200 million initiating and campaigning for Prop 22 (the most expensive initiative in US history, according to the New York Times). Prop 22 is a setback for the State of California in its attempt to regulate the technology sector and offer greater labor protection to gig or on-demand workers.

Prop 22 arose to counter the California law that entered into force on January 1, 2020. Under this law, workers who performed tasks within the company’s main business and were controlled by the company—not operating their own firms—had to be considered employees and not self-employed persons (independent contractors). This meant that Uber and Lyft drivers qualified as employees.

After the entry into force of this law, Uber and Lyft did not only keep their drivers on as self-employed persons, but also publicly threatened to stop operating in California. Then, they launched Prop 22 and ultimately came out with a win. Both companies have been sued for not complying with the law, but any potential fines will only cover their non-compliance period prior to the success of Prop 22.

The approval of Prop 22 means that these technology companies’ drivers or delivery workers are considered independent self-employed persons instead of employees. If they qualified as employees, they would be entitled to benefits and rights such as minimum wage, health insurance, unemployment benefits and the right to sick leave.

In contrast, Prop 22 guarantees that drivers will have a salary (depending on their working hours) equal to 120% of California’s minimum wage, as well as health and accident insurance, increasing Uber’s labor costs by approximately 5% (according to this piece).

Meanwhile, what is the situation in Europe?

• Directive (EU) 2019/1152, of 20 June 2019, on transparent and predictable working conditions in the European Union does not define the concept of employee and refers to the CJEU criteria, which leaves it to Member States to define it. In its preamble, the Directive does mention (i) growing digitalization leading to the creation of new forms of employment, different from the traditional ones; and (ii) the abuse of the status of self-employed persons. Also, regarding unpredictable work, article 10 requires companies to report predefined reference hours and days, as well as to inform workers of their work assignment with reasonable advance notice (this provision is clearly addressed to gig economy players).

• On April 22, 2020 (case c-692/19), the CJEU ruled that couriers working for YODEL (a British delivery and courier service company) should be considered self-employed persons, since in this case couriers could (i) appoint subcontractors or substitutes to provide the service; (ii) accept or reject tasks; and (iii) provide their services to third parties, including competitors.

1. As for our neighboring countries, France was the first (in 2016) to adapt its labor laws to new forms of employment. It created a special category for workers providing services through digital platforms: “auto-entrepreneurs,” i.e., independent workers with several rights, including the right to receive training, accident insurance and minimum wage, as well as the right to defend their collective interests through unions and a pseudo right to strike. The post is available here.

• The Labor Chamber of the Spanish Supreme Court (SC) delivered a judgment on September 25, 2020 (Judgment 805/2020) finding an employment relationship between a delivery worker and the delivery company for which it provided services. The SC argued that the platform was not merely an intermediary, but the holder of essential assets for the business, including the online app. In other cases, courts have also found employment relationships between delivery workers and other sector companies.

In this context, the Spanish Ministry of Labor and Social Economy is working on a draft bill aimed at regulating the employment status of workers providing services for digital platforms in Spain (the news piece is available here).

As a result of these contrasting trends worldwide, the same company may have workers with a different status and level of protection depending on the country where it operates.