As more companies are moving to remote workers post-pandemic, there can be confusion over who is an employee and who is an independent contractor. Much debate on the issue recently led to California’s Proposition 22; outlining who was an independent contractor and who should be classified as an employee. Originally intended to address a narrow group of workers in California only, the legislation is expanding categories and trending across the country.
Prop 22 allows businesses to categorize rideshare drivers and delivery service providers as independent contractors rather than employees. The law, supported by Uber and Lyft, applies to Delivery Network Companies (DNC), couriers and workers who provide delivery services through an online app or platform. Seen by some as a victory for the ‘gig economy,’ others believe the $200 million campaign by rideshare and delivery companies to pass the referendum resulted in a loss for workers.
Will Prop 22 go nationwide?
The CEOs of Uber and Lyft are already advocating for laws similar to Prop 22 in other states. New York, New Jersey and Illinois are already initiating these, with others expected to follow. With millions of dollars at stake, rideshare and delivery companies will push for legislation that allows them to continue leveraging their workforce as gig workers rather than employees.
Businesses across the country have a vested interest in the outcome. Replacing employees with contractors cuts down costs: these workers aren’t entitled to overtime, benefits, or unemployment insurance and are often not protected by discrimination and harassment laws. Delivery drivers waiting for an order who are employees, for example, are on the clock: third-party deliverers are not paid for downtime.
The effect
In addition to the potential to be enacted in other states, some argue Prop 22, and legislation similar to it, may open the door to replace employees with contract workers in other industries. One Uber investor suggested recently the legislation could open the door for gig work arrangements in almost any industry, from agriculture to zoology.
The beginning of that is being seen already. In California, food retailers are laying off their own delivery employees (some union) in favor of third-party providers. The Coalition for Workforce Innovation, which includes Amazon, Starbucks, General Motors and Walmart, is lobbying for expanding the use of contract labor: drugstore chains, construction, sales and trucking organizations are also part of this alliance. The impact of Prop 22 could be the opening salvo in a push to categorize a majority of workers as contractors, rather than employees.
Vetting gig employees
As the use of independent contractors continues to grow, whether through employee demand or legislative authority, business may still be responsible for verifying their contractors are legally compliant. Following a series of incidents, Uber announced it would run initial, then annual background checks on their drivers to assure they held licenses in good standing and do not have a criminal history.
The extent to which a driver may be excluded based on a past criminal record varies from state to state. Depending on the state, misdemeanor and/or felony offenses could result in the inability to work as a driver. It will be important for business to remember that even though the gig worker is an independent contractor, they still may be responsible for accidents and injuries.
For businesses in California, the need to vet contractors is clear: as the Prop 22 trend moves across the country, other organizations will need to follow suit. The independent contractor agreement doesn’t appear to hold business harmless. In San Francisco dozens of lawsuits were filed against Uber, claiming it was aware its drivers were sexually assaulting customers. In Washington DC, a $10 million claim was filed against the company by a woman who claimed she was raped by her driver.
Gig worker liability
Currently, the law requires rideshare companies provide protection for accident victims. In addition to the driver’s own insurance, Uber and Lyft, for example, carry $1 million coverage if there’s an accident with a passenger in the vehicle, or if the driver is alone on their way to pick up a passenger. Victims can file claims against the driver individually as well as the rideshare company. This may set an example for liability for other businesses that leverage third-party providers for their deliveries or other services.
As the Prop 22 trend grows, businesses will be challenged if they move forward with independent contractors. They will need to assure they are classified correctly, and in accordance with the law. They will also need to understand they may still hold liability for their actions: proper pre-employment checks will be needed, as well as routine monitoring to assure any representative of the company doesn’t pose risk to the general public.