Gig companies sidestep new California labor law after $200M initiative passes

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SACRAMENTO — Tech companies have sidestepped a controversial new California labor law in a victory that could reverberate through larger fights over the gig economy.

Gig economy giants shattered state spending records as they spent more than $200 million to pass Proposition 22, which allows them to avoid having to reclassify the workers who ferry passengers and deliver food while extending some wage and benefit guarantees. Uber, Lyft, DoorDash, Postmates and Instacart have treated those workers as independent contractors, but a 2019 law growing out of a California Supreme Court decision — Assembly Bill 5 — likely requires the companies to classify those workers as employees instead.

The campaign marked the first time California’s homegrown tech industry has spent big to take an issue directly to voters, and it pitted Silicon Valley giants against organized labor foes who saw the fight as a line in the sand in a changing economy.

Just before midnight, results showed 58 percent of voters backed the initiative.

The tech companies’ victory also dealt a defeat to California Attorney General Xavier Becerra and big-city attorneys who have sued Uber and Lyft to force them to treat their drivers as employees under AB 5. Courts indicated that the state’s challenge would likely prevail, increasing the stakes for Prop 22, but the initiative’s victory likely stymies California’s case.

Arguing that the mandate would upend their businesses, the gig companies spent unprecedented sums to exempt themselves via Prop 22. While the initiative would block gig workers from claiming employee benefits like minimum wage and paid sick time, it would provide an earnings minimum and some health coverage.

Companies have argued the employment model would result in fewer gigs for drivers and more expensive or scarcer rides for customers. They also said workers appreciate the flexibility of setting their own schedules. The Yes on 22 campaign said in a statement on Tuesday that drivers "will be able to maintain their independence, plus have access to historic new benefits."

California Labor Federation head Art Pulaski blasted tech companies in a statement for "a deceitful campaign to strip workers of the essential protections they need now more than ever."

"The obscene amount of money these multi-billion dollar corporations spent misleading the public doesn’t absolve them of their duty to pay drivers a living wage, provide PPE 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," Pulaski said.

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