Proposition 22 and why it matters to Uber investors

In September 2019, the California state legislature passed the Assembly Bill 2257, commonly referred to as AB5. The goal of the law was to reclassify independent contractors hired in the state as employees. On the surface, this seemed simple enough, but it was potentially catastrophic to businesses like Uber, Lyft, Doordash and Postmates that hire thousands of people as contractors. To reclassify them as employees, these companies would need to cough out billions of dollars to pay things like healthcare, minimum wage, paid time off and more that is required by law.

Facing such an existential threat, Uber and Lyft decided to fight back and threw everything, including the kitchen sink at the law. They even threatened to stop operating in California. Eventually, the companies decided to get behind Proposition 22, a ballot based exemption to AB5 for app-based transportation and delivery companies. California voters said yes to Prop22 with 58.8% votes. A huge victory for popular app-based transportation companies Uber and Lyft. Both companies spent 205 million dollars campaigning for the ballot.

Proposition 22 allows drivers in app-based companies to work independently under those companies without the limitations of full-time status. This is a huge victory for rideshare and delivery companies. From where Uber and Lyft stood, AB5 would have made it impossible for them to exist or make profits.

What companies does it benefit?

Proposition 22 is a huge relief for app-based transportation and delivery companies, primarily Uber and Lyft. They can rest easy knowing there is no longer a need to alter their business model or spend huge amounts of money paying employee benefits and investors agreed. After the passage of Prop 22, Uber shares jumped 18%, and Lyft rose to 22% on Wednesday 4th of November 2020. Both companies gained $13billion in combined market value as well.

Is Prop 22 a win for gig workers?

This is perhaps the most important question. Prop 22 provides drivers with the flexibility to choose working hours and routes while earning a fixed minimum wage, health care benefits and additional insurance coverage. As good as this sounds, labour groups and activists believe Prop 22 is a short end of the stick for drivers. They argue there is no provision for paid sick leave and the minimum wage of $5.64 an hour is far below California’s standard minimum wage of $ 12 an hour.

Notwithstanding, with the Prop22 drivers, are happy they get an increased wage with shiny new benefits. Uber and Lyft can continue operations in California with no need to downsize. The unions and activists live to fight another day.