California Voters Exempt Uber, Lyft, DoorDash From Having to Reclassify Drivers – The Wall Street Journal

Uber Technologies Inc.,

Lyft Inc.

and DoorDash Inc. won a pivotal vote in California that exempts them from reclassifying their drivers as employees, according to the Associated Press.

The companies, along with Postmates Inc. and Instacart Inc., collectively contributed around $200 million to support Proposition 22, a measure that allows them to bypass a state law intended to provide employee-like protections for their drivers. The campaign was the most expensive for any ballot measure in state history. With more than 60% of ballots counted, the vote was running 58% in favor of the measure and 42% against, prompting the Associated Press to project it would pass.

The outcome allows the ride-hailing and delivery companies to avoid complying with a law that could have reshaped their business models and battered their business in the most populous U.S. state. It also sets the tone for gig-worker regulation in the rest of the country.

Still, the effort to win popular support did lead the companies to guarantee new protections. To make their ballot measure more palatable, the companies told voters they would provide health insurance for drivers who work 15 hours or more a week, occupational-accident insurance coverage and 30 cents for every mile driven, among other protections. Opponents of the measure said those benefits fall short of those awarded to full-time employees.

The result deals a blow to California’s lawmakers, who have been embroiled in a high-stakes battle with the companies over the reclassification. They passed a law last year that sought to force ride-share and food-delivery companies to reclassify their drivers as employees, eligible for benefits such as minimum wage, paid sick leave and unemployment assistance.

The app companies’ business models have been built around using independent contractors, known as gig workers, as drivers to keep labor costs low.

None of the companies reclassified workers after the law went into effect on Jan. 1. Instead, they combined forces to support the ballot measure. The state sued in May to enforce the statute, litigation that will be superseded by the election outcome.

The stakes were high for the companies: A reclassification would have weighed on their already-red bottom lines and set a precedent for other U.S. states challenging their business model.

In recent months, the ride-share and delivery companies blasted ads and push notifications to drivers, saying only a fraction of them would be hired as employees. Fewer drivers would mean longer wait times, they said in messages to customers, and prices would rise because of higher costs associated with the reclassification. Uber Chief Executive Dara Khosrowshahiestimated that prices for rides could double if the ballot measure failed.

The California law at the heart of the dispute didn’t restrict flexible work; lawmakers say the companies were free to structure a model where benefits and flexibility went hand-in-hand.

Uber, Lyft, DoorDash and others sent ads and in-app messages that pressed voters to support their cause.



Photo:

Photo Illustration: Dave Cole/WSJ; Photos: WSJ Research (6), Gig Workers Rising (2)

The companies argued it was unrealistic to extend employee-like benefits to many drivers who worked for them just a few hours a week. They also said the reclassification would force drivers to work pre-scheduled shifts, robbing them of the freedom they now enjoy. More than half a dozen drivers interviewed said they planned to vote in the companies’ favor because that messaging resonated with them.

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“App-based ride-share and delivery drivers across the state will be able to maintain their independence, plus have access to historic new benefits,” the companies’ Yes on 22 campaign said, adding that it should become a model for the rest of the country to follow.

The opposition camp—which raised around $19 million, largely from labor unions—was dwarfed by the companies’ ad spending. The companies’ campaign spent more than $80 million through Election Day on television ads alone.

“The obscene amount of money these multibillion-dollar corporations spent misleading the public doesn’t absolve them of their duty to pay drivers a living wage, provide [personal protective equipment] to protect workers as the pandemic deepens or repay taxpayers for the nearly half a billion these companies have cheated from our state unemployment fund,” said Art Pulaski, the executive secretary-treasurer of the California Labor Federation, which led the No campaign.

Uber CEO Dara Khosrowshahi says the ride-hailing company’s drivers largely back Proposition 22, which would exempt them from being classified as employees, during WSJ Tech Live 2020. Photo: Anushree Fadnavis/Reuters (Originally published Oct. 20, 2020)

The win in California lets the companies preserve their business models in one of their biggest markets. The state accounted for 9% of Uber’s gross bookings before the pandemic and 16% of Lyft’s business in the second quarter. But regulatory challenges are far from over. Massachusetts sued the ride-share companies in July over a driver-reclassification dispute. Other states have threatened similar action.

California Assemblywoman Lorena Gonzalez, a Democrat who drafted the law the companies sought an exemption from, said the fight wasn’t over. “Fighting corporate greed & unlimited spending is never easy, but we do it. Over & over & over again. And, don’t worry, I got some ideas. Big love to all the drivers. #hope,” she tweeted.

If the vote in California didn’t go its way, Uber was considering operating in just four parts of the state—the San Francisco Bay Area, Los Angeles, San Diego and Orange County—according to a person familiar with its plans. The company had discussed working with third-party fleets that would in turn hire the drivers, so it didn’t have to employ them directly.

Write to Preetika Rana at preetika.rana@wsj.com

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