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Uber, Lyft could expand new California gig economy model to other states, experts say

Organized labor vows to fight on nationwide.
Ride-share drivers hold signs supporting a no vote on Proposition 22 in Oakland, Calif., on Oct. 9.Josh Edelson / AFP - Getty Images

The decision by California voters to exempt drivers who work for companies like Lyft and Uber from standard employee benefits may signal a future for gig workers nationwide.

Following Tuesday's vote on Proposition 22 in California, legal experts and labor organizers across the country said they were watching to see to what extent other states might embrace similar ballot measures — especially in Western states, many of which allow them.

California's newly passed ballot measure allows such companies, including Uber, Lyft and DoorDash, to classify most of their labor force as independent contractors, rather than employees. That means they don't have to pay for benefits like insurance or unemployment benefits. While Proposition 22 establishes a "minimum earnings standard" and provides some health care benefits, they're far from what companies often give full-time employees.

Because the question of worker classification is established under each state's laws, it's up to individual states to introduce legislation, which many states have already done. New York, New Jersey, Connecticut, Washington, Oregon and Illinois have introduced similar legislation, according to Reuters.

It looks like these big companies are wage similar fights elsewhere. During Uber's Thursday earnings call, CEO Dara Khosrowshahi said that the company will continue its push for "new laws like Prop 22” beyond California.

“We want to have a dialogue with governments in other states," said Khosrowshahi. “We think over the long term it’s going to win.”

John Zimmer, Co-Founder and President of Lyft, in a recent interview with NBC New echoed similar views.

"I believe this is a new model, this is a turning point. This is a new way of getting flexibility that people want with a great set of benefits," said Zimmer. "Absolutely, I think the next step is to work with politicians, regulators, drivers, uh and potentially labor leaders, hopefully, across the country, to bring this to more places."

Costly battles

It's a fight that labor unions across the country are preparing to take on. Steve Smith, a spokesman for the California Labor Federation, wrote in an email that organizing against such ballot measures "will intensify and spread to other states that may face similar battles with the companies in the future."

But the question is whether unions can even afford the costly campaigns. Uber, Lyft, DoorDash and Postmates spent more than $200 million to help pass the proposition, according to the San Francisco Chronicle. That's far more than what labor unions who organized opposition to the bill spent.

"They have to calculate: Could they afford that kind of campaign in other states, and maybe they can?" said an expert in California's ballot initiative process, Mary-Beth Moylan, a law professor and associate dean at the University of the Pacific in Sacramento, California.

Still, Tuesday's vote has given labor organizers a blueprint of how voters in other states might respond to similar proposals. They are already thinking about how they can make their case for workers more palatable to voters.

"I think there was a lot of attention paid to the process in California, and perhaps through the ways in which gig companies presented some of the issues, I think it affected the voters' decisions in ways that were very hard to anticipate," said Lena Simet, a researcher at Human Rights Watch. "Now that we know the result, I think it helps to think through from workers groups to make sure that there is an understanding that we are not asking for the sky. We are asking for very basic protections."

Changing rules

Neither Uber nor Lyft responded to questions Wednesday about what Proposition 22's passage would mean for their similar proposals in other states or at the federal level. However, it's clear that the companies would prefer a nationwide standard.

In a blog post, Tony Xu, the CEO of DoorDash, wrote Wednesday that his company wanted a so-called third way, seemingly going beyond conventional definitions of employees and independent contractors.

"We are committed to working with lawmakers across the country and in Washington to develop tailored solutions that reflect the 21st century economy, and provide certainty to everyone who has come to benefit from the gig economy, including Dashers, merchants, and customers," he wrote.

The new California law would be extremely difficult to modify or overturn: It would require a seventh-eighths vote in the Legislature, which even under a unified, Democratically controlled state Senate and Assembly would be extremely difficult.

While it is possible for state ballot measures to be overturned by the Supreme Court — as was the case when California voters passed Proposition 8, which banned gay marriage — this type of law is different, experts say.

"These rules regarding classification of employees are creatures of state laws, and so the state law governs those," said Steve Tindall, an Oakland-based lawyer who has sued DoorDash and Lyft on behalf of drivers. "Unlike gay marriage, where people have a right under the U.S. Constitution of equal protection under the law, there's not a constitutional right to be classified in a certain way under the law."

So state officials are trying to take on companies like Uber and Lyft through other means. California's attorney general sued Uber and Lyft, alleging that they were in violation of AB5, a landmark labor law that took effect this year. A state appellate court recently found in favor of the attorney general, but the passage of Proposition 22 may diminish the strength of that case. In July, Massachusetts' attorney general brought a similar lawsuit, and that case continues.

Federal changes

It may be up to federal authorities to make any changes. Months ago, Democratic presidential candidate Joe Biden came out against Proposition 22, saying it would "gut" AB5.

Should Biden win the White House, it's presumed that the Labor Department under his administration would take a different approach from the Trump administration's thus far, Smith said.

"Depending on the result of the presidential election, the federal landscape may change in a way that benefits gig workers and further puts pressure on the companies," Smith said. "Our resolve to do everything in our power to support drivers in this fight is as strong as ever."