California passes Prop 22 in a major victory for Uber and Lyft

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Uber and Lyft have won a major victory in their battle to continue classifying drivers as contractors, not employees, following the passage of a ballot measure that exempts them from a California labor law.

On Tuesday, voters in California passed Proposition 22, the most expensive ballot-measure campaign in state history, which came to symbolize a bitter struggle over the future of the gig economy.

Roughly 58% of ballots were cast in favor, following one of the hardest fought – and most expensive – proposition battles in the state’s history. The measure was backed by some of Silicon Valley’s most powerful tech companies, including Uber, Lyft, Instacart and DoorDash, which spent upwards of $200m on the efforts.

The companies claimed that AB5, a labor law passed in 2019 that changes the way companies classify employees, would drastically change how they do business and even threatened to pull out of California after a court order to comply with AB5 in August.

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Drivers and labor groups opposed Prop 22, saying it would allow companies to sidestep their obligations to provide benefits and standard minimum wages to their workers even as they make billions.

The Yes on Prop 22 campaign declared victory late on Tuesday, calling it “a win for drivers across California”. Dara Khosrowshahi, Uber’s CEO, briefly retweeted a tweet by Jason Calcanis, an early Uber investor, calling the author of AB5, the assemblywoman Lorena Gonzalez, a “grifter” who “failed to hand gig workers over to the big-money unions”. Khosrowshahi subsequently deleted the retweet.

Gig Workers Rising, one of several California groups that organizes app-based workers and opposed the initiative, called the victory a “a loss for our democracy that could open the door to other attempts by corps to write their own laws”.

Nicole Moore, a driver and organizer with Rideshare Drivers United, said: “We were outspent 20:1. We were outgunned. But we haven’t gotten this far because it was easy. We are fighters. And we punch above our weight. We stand strong when we stand together. We will fight — in the courts, in Sacramento and in the streets.”

After the passage of Prop 22, workers at gig economy firms will continue to be classified as contractors, without access to employee rights such as minimum wage, unemployment benefits, and health insurance.

Prop 22 will carve out an exception for some driving and delivery apps from AB5.

Uber and Lyft previously claimed their drivers were contractors and by classifying them as such they were in accordance with AB5. The law disagreed, as the state attorney general and two different courts ordered Uber to comply with AB5.

When Lyft went public in 2019, it was valued at $22bn and had 1.9 million drivers working through its app. Uber was valued at $82bn ahead of its initial public offering in May 2019 and had 3.9 million drivers.

The companies fought tooth and nail to save their business model from the legislation, spending millions to plaster California with advertisements in support of the ballot measure for the last several months.

The passage of proposition 22 in the home state of many of the gig economy companies is likely to be seen as an example for tech legislation around the US.

Under Prop 22, Uber and Lyft have conceded to supply workers with some forms of benefits, though the protections will not be as extensive as they would have under AB5. Drivers will now get vouchers to access subsidized health insurance and guaranteed hourly earnings. The companies will also implement new safety measures including more frequent background checks of drivers.

In an email to Uber drivers celebrating the victory, Khosrowshahi wrote: “We’re looking forward to bringing you these new benefits – like healthcare contributions and occupational accident insurance – as soon as possible.”

Gabrielle Canon contributed reporting