Gig companies prepare to bring their fight for independent work nationwide under a more skeptical Biden administration

Still fresh off of a landmark victory in California, companies like DoorDash, Instacart, Lyft and Uber are preparing to bring their message supporting an independent workforce nationwide.

But the companies will face new hurdles in passing similar legislation outside of California. The tradition of direct democracy through ballot measures that exists in the state is less common elsewhere, meaning companies will have to win over lawmakers, not just voters. And in Washington, they will have to face a new federal administration led by a president who openly opposed the California proposition while on the campaign trail.

Nearly 59% of California voters voted yes on Proposition 22, the ballot initiative supported by the gig companies to maintain their workers’ status as independent contractors, rather than employees. The measure would save the companies costly expenses that come with an employed workforce, but it would also require them to provide some new protections for app-based ridesharing and food delivery workers. Those would include benefits they could carry between apps and guaranteed minimum earnings.

The proposition essentially undermined a California law known as AB5 that took effect in early 2020. AB5 targeted the gig companies by establishing a three-part test to determine if workers should be classified as employees. 

Prior to Election Day last year, Uber and Lyft were still fighting a lawsuit from the California state attorney general in court that claimed the companies illegally maintained their workers as independent contractors under the new law. A judge had granted a preliminary injunction requiring the companies to reclassify their workers, determining that the state had a good chance of prevailing on the merits.

The passage of Prop 22 seems to have reversed the fates of Uber and Lyft in California and reinvigorated the fight for their business models across the country. The gig companies point to the relatively high level of support California voters showed for their ballot measure as a reason why lawmakers in other states should see that the independent model is supported by their constituents. 

But state lawmakers working on bills to protect gig workers in places like Illinois, Massachusetts and New York told CNBC that the outcome in California does not necessarily portend the future in their own states. 

State and local lawmakers working on their own legislation to protect gig workers had hoped California would serve as proving ground for some early ideas. But confusing execution of AB5 bred resentment among some workers who were unexpectedly caught up in the new rules.

AB5 painted the workforce with a broad brush, later adding exemptions for industries where its protections weren’t really needed. But that led to lots of confusion for workers who had long been independent, casting a shadow over the legislation. Freelance writers, for example, were furious that their regular contracts had to be cut to remain below the threshold to be considered contractors.

Diane Savino, a New York state senator working on her own legislation to address gig work issues, said that it was a mistake for lawmakers in California cast too wide a net with AB5. 

“Not a single worker’s life was changed the day after AB5 was enacted into law,” she said, making it difficult for Californians to see its benefits when they went to the polls. “It’s hard to extol the virtue of legislation if no one ever sees how it works.”

New York City Council Member Brad Lander had been “optimistic” prior to the pandemic and during the introduction of AB5 in California that his legislature could soon pass new protections for gig workers. But the new reality that took place throughout 2020 seemed to slow down any momentum that existed.

“A lot was riding on California,” Lander said. “There was a lot of optimism that AB5 was going to start the ball rolling, build the momentum for state-level changes.”

Ultimately, inaction benefits the gig companies, Lander said.

“The gig companies don’t have to win by winning. They could just win by stalemating, leaving the current situation,” he said.

But Will Guzzardi, a state representative in Illinois, sees things differently. He said the implementation of Prop 22’s protections for workers in California could give a tangible example of what’s lacking under that model.

“I think in fact the passage of Prop 22 is going to add a lot of momentum to our arguments because we’re going to be able to point to these examples that you’ve seen and say, ‘look what happens when you give the gig employers free rein. Look at the abuses,'” he said. “It’s bad for California but I think it does create an opportunity for us to say, ‘we can’t let this happen here.'”

The fight over gig worker rights has boiled down to one key question: Which way offers the best outcome for workers themselves?

Under the current system, there are two ways workers can be classified: as employees or independent contractors. As the pandemic exposed a key pitfall in that model for gig companies — the fact that their workforce was left with low demand for work and no access to unemployment insurance prior to the passage of the CARES Act — Uber CEO Dara Khosrowshahi asked the government to consider what he called a “third way” to classify work.

Under this model, a third classification group could allow for the flexibility of independent contract work while providing some of the protections of full employment, he argued. Khosrowshahi advocated for portable benefits that could move with workers from one gig to the next.

Some labor law experts have pointed out that nothing in the current law prevents gig companies from taking on part-time employees and providing them with flexible shifts. But the firms have said such a model would be impractical, in part because it would be too difficult to track working hours while maintaining its system built on pairing demand on both sides of the market.

In a statement for this article, an Uber spokesperson said, “Nearly 10 million California voters -including 47% of Democrats- voted to give gig workers what they themselves said they wanted: the choice to keep working independently with new benefits and protections. We hope other states will listen to the voices of drivers and delivery people who strongly support new laws that make gig work better.”

Indeed, a majority of gig workers have said in independent surveys long before Prop 22 came into the picture that they prefer to be independent workers. Those advocating for reclassification, however, point to the large spending power and megaphone of the gig companies.

DoorDash, Instacart, Lyft, Uber and its now-subsidiary, Postmates, poured $200 million into the campaign for Prop 22, while the opposition raised less than $20 million. Plus, the companies had access to voters right through their phones, pushing messages through their apps urging them to vote yes on the proposition and threatening to scale back their services if it did not prevail.

But the companies point back to the broad support Prop 22 garnered.

“Across the country, drivers have consistently said they want to remain independent contractors,” Lyft said in a statement. “That’s why Lyft is advocating for solutions that allow drivers to keep their independence while also gaining historic new benefits like those won with Prop. 22.”

In an interview with CNBC, DoorDash Head of Policy Max Rettig said he cares less about the labels for employment than creating a “legal system that recognizes and enshrines this really unique type of work, that recognizes its value that makes sure that it continues to exist, and that creates benefits on top of that.”

Creating portable benefits that workers can choose from is key, he said, since workers on DoorDash and other platforms often have other jobs that already provide them healthcare benefits, meaning additional offerings from DoorDash could be less meaningful to them. Instead, workers should have the option to put funds toward what they really need.

“The lesson that I would draw about Prop 22 … is this is a proof point that a third way can work and that a third way is ultimately politically popular across the political spectrum,” Rettig said. Rettig added that even though the specific language of Prop 22 won’t necessarily translate exactly to other states or on the federal level, it’s proof that the system can work by keeping the flexibility and benefits workers want.

Instacart similarly said in a statement that it was open to looking at other types of solutions outside of California.

“While Californians passed a first-in-the-nation solution that protected worker flexibility, we recognize there may be other approaches to meet the needs of app-based workers,” the company said. “Many lawmakers across the country are reimagining how to modernize existing labor systems and we look forward to engaging with them on innovative solutions.”

Providing a new model for work is really what will keep workers protected, some advocates say. 

Reverend Kirsten John Foy, founder of Uber-backed social justice group The Arc of Justice and a founding member of the New York Coalition for Independent Work (alongside several gig companies), said whatever the outcome is, he knows the current model of employment has not worked for traditionally marginalized communities. App-based gig work has provided people already working multiple jobs the ability to take on work that has more flexible hours and more agency, he said.

“To say that we can now use a model that has failed our communities in the past to now protect our communities in the midst of economic crisis is laughable,” he said, referring to Black, Brown and immigrant communities.

“Why do we think that the dependency model has served us well enough to continue it or expand it?” Foy said. “It hasn’t. It has served us at the very least marginally. We are running around looking for band aids to problems that are chronic … and the app-based paradigm is a systemic and chronic solution to a chronic problem.”

The pandemic showed many gig workers and lawmakers just how precarious the entire sector really is. 

“People don’t understand their rights until they’re in a situation where they’re really in a jam,” said Jay Livingstone, a state representative in the Massachusetts legislature who introduced a bill last year that would require gig companies reliant on independent contractors to pay into the unemployment system. Because they currently do not, workers for apps like Uber and DoorDash were left without unemployment insurance early in the pandemic until the CARES Act allowed for them to be included in those payments.

Savino, the New York state senator, said she’s gotten “some of the nastiest commentary” of her political career from independent workers telling her to mind her own business when it comes to regulating their industries.

“And then the pandemic hit,” she said. “And what we saw is that working people who were employed by traditional employers, who had unemployment insurance coverage, had workers compensation coverage, had paid sick days, had the least disruption in their lives were the ones who fared the best in this environment. And the people who had been out there, these gig workers, were the ones who were really in the worst possible position.”

Soon, the emails took a different tone.

“I’m desperate, I can’t get into unemployment, I’m not eligible, I need help,” Savino recalled the messages saying. “And we don’t want to find people in that position. So what we need to do is figure out what makes sense in this modern world of work. Because no matter what we do, here’s one thing we know: People aren’t going back to the way things used to be.”

Livingstone said he remains concerned about “validating [the] business model” of gig companies, but he decided that the best way to get relief to workers would be to “avoid that dispute of what exactly is the employment relationship.” 

“There’s a more immediate concern of if there is another downturn or if this downturn continues and federal programs expire, how is the state going to provide for these people?” he said. “And as more of the economy is shifting to an independent contractor model, whether legally or illegally, it’s going to be more and more of an issue when there is a downturn moment like this.”

While California provided an early win for the gig companies, it’s clear there’s still a long road ahead.

On his campaign website, President Joe Biden promised to “put a stop to employers intentionally misclassifying their employees as independent contractors,” including by enacting laws that would make misclassification subject to greater penalties. 

Biden openly advocated against Prop 22 and nominated a former union leader, Boston Mayor Marty Walsh, to lead his Labor Department. If confirmed, Walsh would have to figure out what to do about a rule the Trump administration created at the end of its term and set to go into effect in March. The “Independent Contractor Status Under Fair Labor Standards Act” rule would make it easier for gig companies to argue that their workers are truly contractors rather than employees. 

On Inauguration Day, the Biden administration froze the rule for regulatory review, delaying its effective day to May 7. The DOL could still further delay or take action to roll back the rule after going through mandatory processes.

In Congress, Democrats reintroduced the PRO Act, a broad labor rights bill, earlier this month that would establish an ABC test to determine worker classification at the federal level, similar to California’s AB5. 

And in New York, a federal court ruling in July determined Uber and Lyft drivers are eligible for unemployment payments from the state, though the judge also said the companies had made it unfairly difficult for drivers to receive those benefits. Savino said New York’s court rulings mean the state has a different dynamic from California’s.

“We could do it the easy way or the hard way,” she said. “The easy way is let’s come up with a legislative framework that we all understand and makes sense for workers. Or we could do it the hard way. We could just hand you [the gig companies] a bill for past due insurance premiums. Which would you like?”

Groups advocating for employment status for gig workers will likely look to where messaging worked and fell short in the California campaign. Will Coleman, CEO of rideshare service Alto, which employs W-2 workers, said he’s felt that the potential benefits to consumers of an employed workforce has been missing from the narrative.

“I think we need to do a better job of really articulating the consumer trade-off in addition to the employee trade-off,” Coleman said. Those could range from more consistency in service to a quicker ride with fewer cars on the road to lower emissions. 

“They may have won Prop 22 in California, but they didn’t win the war,” Savino said. “And it’s in their interest to do it the right way in New York.”

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