Proposition 22 Passes, But Uber and Lyft Are Only Delaying the Inevitable

On Tuesday night, Californians voted to pass Proposition 22, a ballot measure supported by app-based gig companies that exempts them from reclassifying their workers as employees.

Companies including Uber, Lyft, Instacart, Postmates, and more, spent big to convince voters to approve the measure. The company-funded Yes on Proposition 22 campaign spent over $200 million (including millions in donations to the California GOP), deployed a record number of lobbyists, and spread waves of misleading political mailers. At the same time, Uber’s and Lyft’s chief executives undertook a media tour featuring threats to exit the state and repeatedly attempted to exempt themselves in California’s courts. The campaign bought  digital, television, radio, and billboard ads, and also sponsored academic research Meanwhile, delivery drivers were forced to use Yes on Proposition 22-branded packaging while the apps themselves told users to vote yes. 

On the other side of the issue was a grassroots campaign run by driver advocacy groups and organized labor, which spent just over $20 million. 

“We're disappointed in tonight's outcome, especially because this campaign's success is based on lies and fear-mongering. Companies shouldn't be able to buy elections,” Gig Workers Rising, a California-based driver advocacy group said in a press release early Wednesday morning. “But we're still dedicated to our cause and ready to continue our fight. Gig work is real work, and gigi workers deserve fair and transparent pay, along with proper labor protections.”

As news of the results broke, Uber CEO Dara Khosrowshahi took to Twitter to show his excitement and shared a tweet from early Uber investor Jason Calacanis calling Assemblywoman Lorena S Gonzalez, the author of AB5, a "grifter" who "failed to hand gig workers over to big-money unions".

After some time, Khosrowshahi reversed the retweet and instead emailed drivers a more subdued message celebrating that the "future of independent work is more secure because so many drivers like you spoke up and made your voice heard—and voters across the state listened."

This is undoubtedly a victory for capital over labor, and one that will likely allow the unprofitable gig economy to continue limping along at the expense of workers. It does not, however, change the reality that the “gig” business model is doomed in the long-term.

For years, gig companies have misclassified employees as independent contractors—a legal distinction that has allowed unprofitable enterprises to avoid expensive labor costs such as a minimum wage, health insurance, and safe working conditions, among other benefits of employment. Proposition 22 was cooked up to undo Assembly Bill 5 (AB5), a California law that codified an "ABC test" to determine if a worker was independently contracted or employed by a company and which went into effect in January.

After AB5 went into effect, attorneys for some of California’s largest cities, along with the state’s attorney general, then filed suits demanding an end to app-based gig company worker misclassification. Uber and Lyft have waged the main legal battle, but lost the case and every appeal since, making Proposition 22 a make-or-break measure.

"Prop 22 means I get no workers' compensation, no disability, no sick pay, it would be touch and go for me," Mekela Edwards, an Oakland-based Uber driver who hasn't worked since March because COVID-19 poses a high health risk to her. "I have to ask how long my unemployment will last, how long I'll have before I'm forced to go back out there and work. I don't want to imagine it, I can't imagine being forced to choose between my health and making a living."

Hundreds of thousands of people work for the gig companies behind Proposition 22 and many have been devastated by the COVID-19 recession. Still, this has not stopped the gig companies from threatening to take drastic measures if they’re not allowed to have their way. Over the past few months, Uber and Lyft in particular have threatened to radically downsize where service is offered, fire most of their drivers, radically restructure into a franchise model, or leave the state entirely, if Proposition 22 fails.

California voting Yes on Prop 22—which includes fine print that any changes to it must be passed with a seven-eighths majority in the state’s legislature—is a huge setback for labor. It will trap hundreds of thousands of workers under a permanent misclassification scheme that rewards a racist business model that disproportionately hurts Black and brown workers. Despite all this, Proposition 22 is not the final say on this matter in the U.S. or internationally.

AB5 clones are being considered in New York and New Jersey, while Massachusetts’ Attorney General has already sued Uber and Lyft to reclassify drivers in the state. Despite objections from Uber’s and Lyft’s impressive lobbying operations, the PRO Act—which would grant gig workers the right to collectively bargain, as part of a massive overhaul of labor law—has passed in the House.

“This is really a story about the kind of cities we are building,” Katie Wells, a researcher at Georgetown University told Motherboard. “The kind of cities—the kind of world we've built—it has allowed these entities to come in and build up a workforce through an extractive and predatory system. Regulators have to keep that in mind.”

Outside of the U.S., the global 2019 strike on the day of Uber’s public offering has been followed by successive waves. Over the summer, thousands of delivery workers organized militant strikes and protests in Brazil, Mexico, Chile, Argentina, and Ecuador targeting Uber Eats and other exploitative food delivery apps. These have been joined by even more strikes and protests in Nigeria, France, and India. At the same time, Uber is losing legal challenges in France, Britain, Canada, Italy, where high courts have either outright ruled Uber drivers are employees or have opened the door to lawsuits reclassifying them as such.

Governments across the world are also beginning to push Uber to pay billions in taxes that it has evaded over the past decade. In Britain, Uber will have to pay £1.5 billion ($1.9 billion) in unpaid value-added taxes it avoided by exploiting a legal loophole. In the U.S., Uber has dodged billions in taxes and wage claims through misclassification: in New Jersey it owes over $650 million in taxes, while in California drivers have filed $1.3 billion in wage claims against Uber and Lyft.

Since Uber’s only hope for survival lies in misclassifying workers and labor law, though, it won’t give up the billions to be made both domestically and globally (even if at a loss) without a fight. 

"There's a lesson here for workers of all sectors, beyond classification: companies are willing to spend massive amounts of money to take away their rights," said Jerome Gage, a Lyft driver and organizer with Mobile Workers Alliance. "It's incredibly important for workers to organize to protect themselves, to protect upward mobility, a minimum wage, sick leave, healthcare—to roll back a century of basic protections that try and keep Americans out of poverty."

Proposition 22’s victory, however, can’t obscure the fact that these companies are doomed. Even with a wage guarantee that effectively pays $5.64 an hour, the companies are no closer to sustainably achieving profitability than they were yesterday. Overcrowded markets for ride-hailing and food delivery, along with vicious price wars and poor unit economics meant there was never any real hope of achieving a monopoly, erecting barriers to market entry, and raising prices to levels that, for many of these companies, would yield their first ever profits. 

There’s good news for investors, however, who will finally begin to see returns on investments that have long been underwater thanks to massively inflated valuations that have tumbled in public markets. Indeed, share prices for Uber and Lyft soared in premarket trading on Wednesday morning. 

For workers, though, things will be bad. It is hard to imagine how hundreds of thousands of workers earning wages just under half of the minimum wage will be able to feed themselves, maintain housing, afford medical care, or otherwise make ends meet, especially under the boot of a pandemic and with no hope of government aid until next year.

Localities, cities, states, and countries will have to begin cooperating if they’re to have any hope of weathering the storm. They’ll need to start being aggressive, experimenting with ways they can outright take over the platforms or prohibit companies from providing the service to begin with—all while figuring out ways to expand mass transit so that not only they’re not only meeting the needs of people who need transportation, both those who worked for app-based ride-hail companies previously.

For the sake of maintaining an illusion that they’ll one day be profitable, gig companies have waged war in California at great expense to their workers, the public, and employees in other industries whose employers may grow emboldened this moment. The fight is far from over, and there is hope for labor in the continuing coordination of driver advocates, regulators, and legislators around the world, but it will get messy as likely to harken a period of unprecedented social unrest among increasingly immiserated gig workers.

"Beyond California, we need to strike early and strike quickly to ensure swift defeat to this idea that you can change the basic nature of employment and deny benefits to your employees,” Gage told Motherboard. “I ask people not involved to try and understand the labor movement in your area. Reach out to unions and ask how you can help volunteers…Get involved with and spread the world—[money] can buy misinformation and it can deceive, but it can't beat the solidarity between two workers or between human beings.”