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California Prop 22 vs AB5: How Would it Impact Delivery Contractors (Grubhub Doordash Postmates Uber Eats etc.)?

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The reality of life in California under AB5 is hitting hard this week.

Lyft just made the official announcement: They are shutting down in California until the whole mess is settled. Uber has warned they will do the same, though as of this writing (noon, August 20) they haven't posted anything official.

This is the fallout from AB5 that's been waiting to happen. People are wondering if delivery apps are next. I speculated that they may be, but only after the state sues them and forces them into a corner like they did Uber and Lyft.

What now? Gig companies are banking on getting Prop 22 passed. Prop 22 is a ballot initiative that would allow gig companies to continue using independent contractors in return for certain guarantees and protections for contractors.

How would Prop 22 change things for independent contractors who deliver for gig apps like Grubhub, Doordash, Postmates, Uber Eats, Instacart, Shipt and others?

What would the passage of Prop 22 help contractors for Grubhub Doordash Uber Eats Postmates etc and how does it stack up vs AB5?
What would the passage of Prop 22 help contractors for Grubhub Doordash Uber Eats Postmates etc and how does it stack up vs AB5?

Understanding Prop 22 vs AB5 vs Status Quo.

As it stands right now, gig companies are using independent contractors to perform tasks for them. The best known examples are Rideshare (Uber and Lyft) and delivery (Grubhub, Doordash, Uber Eats, Postmates).

Contractors have no guarantees. There is no minimum wage. How it works is, a contractor trades a task (such as driving someone or delivering food) for money. Technically, the contractor is operating as a business.

While there are no guarantees, many choose the freedom of being an independent contractor. A company cannot control the work or the method of the contractor. Contractors can work when and where they want. They can work for as little or as long as they prefer.

Contractors can choose to work for multiple gig companies, sometimes doing so at the same time. This is the freedom of operating a business.

Along came AB5.

When companies are using contractors at the scale and the volume that is done by Uber, Doordash, Grubhub, Lyft et al., that attracts some scrutiny.

That's because the law basically says you cannot duck out of your responsibility to employees by classifying them as independent contractors. That principle is pretty universal across state and federal governments.

However, the law isn't very clear about exactly what point someone has crossed the line between contractor and employee. Each state has their own definition. Different parts of the Federal government interpret this issue differently.

And the thing is, most of these rules are so vague that it's pretty easy for companies to skate around them. Especially very large, well funded companies who can afford really good lawyers.

In California, AB5 was introduced and passed into law. That law establishes a 3 part test. A worker has to pass all three parts to be classified as an independent contractor.

Test A: The worker must be free from control by the company they contract with.

Test B: The worker cannot be performing work that is a central part of the contracting company's business.

The C Test: The relationship has to be one that would traditionally and normally be a contractor/business to business relationship.

A contractor must pass the A, B, and C tests (all three) to be classified as a contractor
A contractor must pass the A, B, and C tests (all three) to be classified as a contractor

If you fail either of these tests, you cannot classify someone as an employee.

What does this mean for gig workers?

It seems pretty clear to me, this was aimed at gig economy companies.

There are accusations that companies like Uber, Lyft, Doordash, Grubhub, Instacart etc. are dodging minimum wage, overtime, FMLA, and insurance protections (to name a few) by using employees.

Ultimately, the intent is to force these companies to utilize employees instead of contractors.

Is that better or worse for those of us doing delivery work? I don't think there's a clear answer to that one. Do you feel like the protections that go with employment are more important? Or do you prefer the freedom of being an independent contractor?

The gig economy's response to AB5: Prop 22.

With the passage of AB5, Uber, Lyft, Doordash, Postmates and other gig companies counter moved by introducing Prop 22
With the passage of AB5, Uber, Lyft, Doordash, Postmates and other gig companies counter moved by introducing Prop 22

AB5 was passed and signed into law in September, 2019. As you can imagine, companies have challenged the law in court and lobbied for exemptions. So far, they have been unsuccessful.

So what's the next best step?

Change the law.

Several gig companies joined together to introduce Prop 22 and pushed to get it put on the ballot. Prop 22 would allow gig companies to continue to use independent contractors. Provisions of the bill would provide some earnings guarantees and provisions for insurance.

You can read more about Prop 22 here, including a copy of the initiative itself.

This article is not to say which is better.

My purpose here is not to come to a conclusion. I'm not here to convince you one way or the other.

I see some strong points for each.

The purpose of this article is to walk through what's on Prop 22, and look at how that would impact us through the lens of delivery based contracting. What would be different about delivering for Grubhub or Doordash or Postmates or Uber Eats if Prop 22 passes?

I'm going to do my best to be objective in this. I know I've got some strong opinions and I'll warn you, my bias may come through.

I'm kind of a curmudgeon about some of these issues. There's some stuff going on that I absolutely despise.

The good news is, I feel like I'm an equal opportunity curmudgeon. Let's face it: I hate the hypocrisy of a state that will shut down contractors in many professions while violating their own law and hiring contractors to handle unemployment claims.

I also hate the attempts of gig companies to manipulate contractors into thinking like employees while keeping the contractor classification.

I've got strong opinions against both sides of this issue. I'm sure they'll show up. The thing to me is not to take sides, but to try to identify the impact that all this has on those of us who are in the trenches.

That said, let's walk through the provisions in Prop 22 and see what those mean for those of us who are contractors. I won't go word for word over the initiative – there's a lot of fluff in there about why the legislation is being introduced. But we'll walk through the things in there that will actually change and try to identify real world impact on delivery contractors.

Article 2: App-Based Driver Independence.

The first section of Prop 22 talks about the independence of drivers

Article 1 dives into all the reasons for the proposition. It covers some highlights, but it's in the following sections that they dive into the nitty gritty.

The first section that does that is labeled “Protecting Independence.” If the following conditions are met, an app based worker would be considered an independent contractor:

The gig company does not set times or schedules or hours that someone has to work on a platform.

The gig company does not require the contractor to accept any specific gigs as a condition of maintaining access to the platform.

A gig company does not restrict a contractor from working other services “except during engaged time”

The gig company does not restrict contractors from working any other lawful occupation or business.

What does this mean for contractors?

When compared to AB5, the main difference is that a person would still be allowed to work as an independent contractor. It essentially overwrites the restrictions created by AB5 and defines an app based worker as an independent contractor.

You would continue to have the freedoms you now know, but to a more limited extent. We'll get into that next. You still would be on your own when it comes to taxes and a number of other things.

How does this compare to pre-AB5 contracting?

Gig companies are allowed more control over contractors.

There's one specific area that gives an app far greater control.

The network company does not restrict the app-based driver from performing rideshare or delivery services through other network companies except during engaged time.

Article 2, Section (c) of Prop 22 (emphasis mine)

In other words, say goodbye to Multi-Apping.

Right now, a gig company is not allowed to restrict work for other platforms in ANY capacity. That even means they can't stop you from picking up another delivery from another platform while you're on a delivery.

Prop 22 will allow them to restrict you.

In other words, you can't be involved in ‘engaged time' at the same time on different platforms.

Many of us will turn on other apps now as we're on the way to completing a delivery. That allows us to have a delivery already lined up by the time we drop off. You won't be able to do that under Prop 22.

Prop 22 Opens the door to more restrictions by limiting the conditions.

Right now, a company cannot control the work you do.

It's a pretty broad definition, but it should be.

They cannot control how you do your work. They cannot require you to wear a uniform. These companies can't stop you from taking other offers even while on a delivery.

Prop 22 narrows the list down to four specific areas of control. They can't control when you work, they can't require a specific gig be accepted, they can't restrict your ability to work for other apps or other jobs.

But what about restrictions not listed?

Here's one that comes to mind: It says they can't require you to accept “ANY SPECIFIC” delivery. There's no prohibition against requiring an acceptance rate.

7452. Contract and Termination Provisions.

As part of defining the relationship, Prop 22 goes into specifics about the contract and termination of the contract.

A company cannot terminate you unless it be for grounds specified in the contract.

The company has to provide an appeals process when terminated.

These may be slight improvements over the current status.

I say “MAY” be improvements because I'm not sure that it's any different right now from what is technically allowed. I do think it's an improvement over current practices.

Right now, contracts have terminology that says someone can be terminated at the sole discretion of the company. In other words, you could be terminated for no reason. This seems to put an end to that.

The appeals process is a big issue right now. With Doordash, you cannot appeal a termination when it's based on specific metrics. With most gig companies, there's really no recourse if you are terminated.

The thing is, right now they can terminate you without any due process. You get no information on the details, you have no chance to state your case, nor do you have any opportunity to face your accuser.

Generally these companies run their appeal by just looking over the same stuff they did, giving you no opportunity to address the issue. That's not an appeal.

If they're allowed to continue handling appeals the way they do, there's no improvement here. But I will say that based on the language used, it's an improvement over current practice.

Article 3: Compensation.

The next meaningful section in Prop 22 gets into compensation of contractors
The next meaningful section in Prop 22 gets into compensation of contractors

Here's my summary of article 3.

There will be an earnings floor. A minimum amount of pay FROM THE GIG COMPANY will be 120% of minimum wage plus 30 cents per mile driven during what they call “engaged time.”

There is no compensation for time or miles for any time between deliveries.

Here's roughly how it works: These companies will still have a pay model. You still get paid whatever for a delivery. You'll complete your deliveries over the course of the pay period (think in terms of how often you get paid right now – once a week – that will probably still be the pay period but it can be as much as two weeks by definition).

At the end of the week, all the ‘net earnings' are added up. Net earnings do NOT include tips, any tolls, cleaning fees or anything like that. If your net earnings are less than the earnings floor, the gig company makes up the difference.

Gig companies cannot keep any tips. They cannot charge you any processing fees for tips that they forward to you. Tips cannot be included in the ‘net earnings.'

In years following 2021, the per mile amount will be adjusted based on inflation.

What does this mean for delivery contractors?

You're guaranteed 120% of minimum wage plus tips plus 30 cents a mile for the time and miles you spend while on an active delivery. In other words, from the moment you take a delivery to the moment you drop it off at the customer, that's the basis of your guarantee.

You do not get any compensation for time between when you drop off and the time you accept another order. You do not get any pay for miles during that time. If you choose to head back to a hot spot, it's completely on your own.

A real world example.

I'll just take a look at my numbers from the previous week. I only worked a partial week.

During the past week:

  • Total time was 22 hours 45 minutes
  • I drove 287 miles.
  • I earned $711.29, an average of $31.27.
  • That breaks down to $282.38 in fees from the gig companies and $428.97 in tips

During that time, I drove 28 miles during the 119 minutes that I was between deliveries but not actively delivering. (I'm a nerd, I track that stuff)

Here's how it would have worked:

My earnings floor would have been calculated as

1,246 minutes of engaged time x $14.40 (120% of $12). ($299.04)

+

259 miles at 30 cents a mile. ($77.70)

My earnings floor then would be $376.74.

The fees I earned from the gig companies were $282.38, which is $376.74. The gig companies would have to make up the difference.

In the end, using the compensation breakdown, my total amount would have been $805.71 (the $376.74 floor plus the $428.97 in tips). That averages out as $38.80 per hour for my “engaged” time or $35.42 for the actual time I was out delivering.

So even though I wasn't paid for the inactive time, which was about 10% of my time overall, I would have made more under Prop 22.

That doesn't mean everyone's going to make that much.

There are a lot of factors here.

The biggest variable is going to be how much time is not “engaged” time.

For me, the nearly two hours of idle time was one of the worst weeks I've ever had. Most weeks that I'm doing 40 plus hours I have maybe about 30 minutes idle time.

If you have really large amounts of down time between orders, you're going to be hurt by this IF YOU COMPARE IT TO A MINIMUM WAGE JOB. I do think you're almost universally going to see an earnings improvement through Prop 22 numbers over what you get as fares and incentives from these companies.

Grubhub's base is generally around 13 cents a minute ($7.80 per hour) and 22 cents a mile. It varies slightly. That's a lot less than $14.40 plus 30 cents a mile.

And don't even get me started on Doordash.

There's one reason I might not have made as much as it looks like under Prop 22.

I multi-app. If I can find deliveries that go from the same general area to pick up and drop off in the same general area, and if taking an additional delivery means I won't be significantly later in completing someone else's delivery, I'll stack deliveries.

If I have a long wait at a restaurant, I'll go ahead and accept a short quick delivery on another platform.

As I near the dropoff on a delivery, I'm often firing up several apps to see who comes up with a good offer.

I wouldn't be able to do that under Prop 22. Not if the company is allowed to prohibit my working another app during engaged time.

How much difference would that have made? A little – not a ton. Maybe 5 percent? It's hard to measure.

Article 4: Benefits

While you still would not be an employee under Prop 22, Article 4 addresses some employee-like benefits that would be added.
While you still would not be an employee under Prop 22, Article 4 addresses some employee-like benefits that would be added.

Additional subsidies would be provided by app companies based on how much time you average with a platform. The subsidy would equal up to 100% of the average ACA healthcare premium under Coverage California.

When I look at their 2019 statistics, it looks like the average premium was $547. If I'm reading that right, it looks like you could earn an additional $1641 per quarter if you work enough engaged hours.

That number would obviously go down or up based on what the current average is.

If you averaged 25 hours engaged time over the full quarter, you'd get 100% of that subsidy. If you averaged between 15 and 25 hours, you'd get 50% of that. Less than 15 hours would receive no subsidy.

There's a provision in the act requiring you to submit proof of enrollment.

What does this mean to contractors?

I'm going to admit, I'm suspicious.

I've seen too many times that these apps dangle a carrot in front of you by way of some incentive, only to make the incentive next to impossible.

If you've ever gone after an incentive that gives you a bonus after so many deliveries in a given period, only to all of a sudden not receive offers when you're almost there, you know exactly what I mean.

Understand this: As a contractor, there is no obligation on the part of the gig companies to keep offering you deliveries (or rides if doing rideshare). What is to stop any of these companies from implementing an algorithm that stops sending you offers when you get close to the threshold?

It looks great on paper. I guess it's a trust thing for me.

Additional insurance provisions

A second section under benefits provides for loss and liability protection. There is accidental death and accident protection and a disability provision which would compensate if anything happens while on delivery.

The companies also would be required to provide additional liability insurance, particularly automobile liability.

This is not the same as commercial auto insurance. Doordash and Postmates have versions of this already, and all it is is protection to cover costs of damage that YOU cause to another. Neither you or your vehicle are covered under this policy.

Additional Provisions to make it look like an employee relationsip.

Article 5 goes into some HR-type provisions. They go into detail about anti-discrimination and anti-sexual harassment measures. I don't know enough detail on all this, but my take is it seems to be stuff that's already understood. To some extent it adds a level of responsibility to the contractor. That's not necessarily a bad thing.

In fact, Article 5 adds a lot of provisions that increase driver responsibility. They specify that someone can't impersonate an app based driver. In other words you can't work on someone else's account. In fact, it makes it a criminal offense to do so.

You have to take a rest period. You cannot work more than 12 hours in a 24 hour period. Uber Eats already has that restriction but most the others do not.

And they can now require safety training. That's not a bad thing in my opinion. You may have noticed how little training there is on these apps right now. Much of that is because for a company to provide training of any kind, that can be seen as controlling the work of a contractor.

This is stuff that allows a little more level of control over drivers, though not in ways that I think are bad.

Overall Impressions: Prop 22 vs AB5 vs the Status Quo for independent delivery contractors (Grubhub Doordash Uber Eats etc.)

As I was writing this, I learned that the appeals court in California granted Uber and Lyft more time to transition. So it appears they aren't shutting down just yet.

If AB5 holds up, the bottom line is you're going to be working under an employment arrangement in California. There are situations where that will allow the best earnings potential, as you get paid for all the time you are out there. But it also could severely limit the opportunities for you.

If Prop 22 passes, I think you're going to find that earnings will be slightly improved. I've long argued that these companies should be doing more out of their own pocket. It's been a race to zero instead. 120% of minimum wage PLUS compensation based on miles is generally more than I'm seeing anyone put up.

As it has been up to date, there were no guarantees. There was no minimum wage or overtime or other protections. There were also fewer limitations to your ability to take your earnings into your own hands.

I can't tell you which is better. I can tell you that I prefer the status quo and I'm glad I'm not in California. The prospect of allowing more control in areas that it wasn't allowed bothers me. The prospect of not being allowed to be a contractor bothers me even more.

Whether it's better for you is a different story. Gig companies have been able to do an end around on things that companies aren't allowed to do with the people that do the work for them in the past. I'm not sure that's the best thing.

I'm just not sure if AB5 or Prop 22 are the answer.

Could this help someone else? Please share it.

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Patricio Da Silva

Saturday 5th of September 2020

Having driven for UberX, UberBlack, and UBerEats for 6 years, and now GrubHub, I have this to say. Uber has screwed it's drivers and deserves to be put out of business.

Time after time, for the 6 years I drove for UBer, whenever I found myself making good money for Uber, UBer ALWAYS figured out a way to pay us less and cut our pay, not just once, but many times of the course of 6 years I drove, I swear, I must have been a masochist to have worked for Uber so long. Note that Uber has a very high turnover rate, and it's public pricing model is so low it cannot operate at a profit, and is subsidized by billionaires. It's now on the stock market, but that can only sustain it for so long.

AB5 will hasten Uber's demise in CA, and good riddance.

However, it will harm Grubhub by increasing it's overhead. Grubhub is a profitable company, and I consistently make $19 - $2o and hour for every hour I'm on the road, driving at 50% fewer miles. I'm totally fine with that, and I don't need AB5 to force them to drop CA ( which they will do, as CA is a small part of GH's business ) . I'm 70 years of age, and there aren't many jobs for people my age, and i don't appreciate AB5. I have health care via medicare ( and ACA prior), and I don't believe in employee sponsored health care, I believe in the ACA and UHC. with a simple legislative fix, we could get independent contractors unemployment insurance, and haven't they already done this with the covid bailout? We don't need to become employees to get more benefits, so much that it will force operators to leave the state.

You know what I think? The free market will kill Uber anyway, and reward Grubhub, but AB5 will kill them all.

That's what I think. I drove a cab for 15 years, and know a lot about this business.

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