The election is over, for the most part, we think, so how will the results affect those of us who contract with Grubhub, Doordash, Uber Eats, Instacart and others?
A couple of Senate seats are still up for grabs, and the Presidential election hasn't officially been decided yet. There are court challenges ahead, but I'll write this article on the assumption that Joe Biden will be the new President. And, oh, by the way, Prop 22 in California passed.
How do all of these election results impact us as delivery contractors? These results will have an affect on the ability of Grubhub, Doordash, Uber Eats, Lyft and others to use independent contractors, on the economy itself and possibly on the pandemic. We'll talk about how changes could impact us, positively and negatively.
How will California's Prop 22 election results impact Doordash, Grubhub, Uber Eats, Instacart, and those of us who contract for them?
Prop 22 passed, which on the surface means these companies will continue to be able to use independent contractors.
in 2019, the state of California passed AB5 into law which was meant to clarify the difference between independent contractors and employees. It established a three part test, and a company had to pass all three tests in order to legally use independent contractors. Courts ruled that Uber and Lyft did not pass these tests, and Doordash, Instacart and others were facing challenges.
Many of these gig companies sponsored a ballot initiative calld Proposition 22 that would overwrite AB5 and specifically stated that app workers are still considered independent contractors. That initiative has passed, with current counts showing about a 56.5 to 43.5 percent lead.
What that does is allow gig companies to continue to use independent contractors under California law. The law added some clarifying definition around whether an app based worker can be considered an independent contractor. It also provided for some minimum pay and other benefit thresholds.
These election results may not affect Doordash, Uber Eats, Grubhub, Instacart and others as much as we think.
Remember that AB5 was only a California law. It did not apply to gig workers in other states.
Prop 22 is also only a California law. It does not change classification as far as the federal government is concerned.
Prop 22 only specifies that app based workers are contractors under California law. However, the IRS and Department of Labor have their own standards to determine whether an employer has crossed the line of the employee / contractor relationship.
Furthermore, Bloomberg reports that California contractors could still sue for misclassification, minimum wages, employee reimbursement, etc. based on time worked between January 1, 2020 (when AB5 went into effect) and the passage of Prop 22. Whether they could win or not is a different story.
Provisions in Prop 22 could create some interesting issues under the IRS.
The IRS lists three factors they use to measure whether someone is an independent contractor. IRS Publication 1779 lays out three tests that determine whether or not a work relationship is an employee relationship.
Prop 22 has provisions that could put gig companies at risk under all three of these tests.
The IRS Publication 1779 states that “A worker is an employee when the business has the right to direct and control the worker.”
This is one of the reasons that companies allow you to accept and reject offers. They cannot force you to accept any particular offers. They also cannot prevent you from delivering for other platforms.
I brought up some concerns about whether Prop 22's narrowing the definition of control down to four specific areas would actually open the door to being able to control workers in the unspecified areas.
There's also a specific provision that states “the network company does not restrict the app-based driver from performing rideshare or delivery services through other network companies except during engaged time (emphasis mine).
In other words, it's allowing companies to restrict your ability to work other apps while you are active on a delivery. That in and of itself is additional control.
A paper put out by Payup took a look at the potential loss of flexibility. I looked at it, and it didn't strike me as something that was particularly objective. They gave a lot of ‘loss of flexibility' examples which were actually things that already existed depending on some apps. In the end though, they seemed to draw the same conclusion that I did in that narrowing the scope of things that could be considered ‘control' could open the door to those companies finding more ways to control drivers.
Training as behavioral control.
Part of that information on behavioral control involves training.
“If the business provides you with training about required procedures and methods, this indicates that the business wants the work done in a certain way,”
Go look up section 7459 in Prop 22. Safety Training. A network company “shall require an app based driver to complete the training described.”
I think this control thing can work both ways. There were concerns raised by Payup that the lack of specification could mean there's more room for a company to take control. This balance with how the federal government views control would, in my estimation, serve as a check against over stepping control.
At the same time, there are aspects of this that do add more control, a few more requirements and restrictions. And California law allows it, but more control is still more control in the eyes of the IRS.
A second factor is if financial arrangements indicate a right to control the business part of the work. There are two things at play in their explanation:
“Expenses. If you are not reimbursed for some or all of business expenses, then you may be an independent contractor.“
Prop 22 stipulates that the payment floor would include 30 cents per mile. I'm sure the companies would argue that this 30 cents a mile is a payment basis and not a reimbursement. But in practice, it still looks like a reimbursement to me. If it walks like a duck.
“Opportunity or Loss – if you can realize a profit or incur a loss, this suggests that you are in business for yourself and that you may be an independent contractor.”
By creating a minimum payment amount (floor of 120% of minimum wage) AND by adding in the per mile rate, doesn't that take away the opportunity for loss?
Relationship of the Parties
“Employee Benefits – if you receive beneifts such as insurance, pension, or paid leave, this is an indication that you may be an employee.”
Guess what the title of Article 4 is in Prop 22?
Prop 22 makes provisions for a Healthcare Subsidy and occupational accident insurance.
Will these things be interpreted as crossing the lines from contractor to employee?
Remember – Prop 22 only changed California law.
But where the IRS is concerned, Prop 22 adds elements that could be considered evidence of an employee relationship.
The main thing this impacts is self employment tax. When you file your taxes, you could make a claim that you were improperly classified as a contractor. If the IRS agrees, they could force the hiring company to pay the employer portion of FICA taxes (or half of your self employment tax).
Department of Labor has other areas where they have jurisdiction. It tends to boil down to varying degrees of control and the relationship of companies. Their jurisdiction is over things like minimum wage and overtime, unemployment benefits, and federal workplace rights such as discrimination and family medical leave regulations.
Prop 22 was created to look like they're providing protections to drivers, as far as voters are concerned. However, those protections they are providing could be seen as stronger evidence of an employee relationship on the federal level.
I say “could be.” That's because ultimately, decisions on the federal level are made based on weighing the different factors. It's a subjective thing.
It depends a lot on who's in control. We'll get to that more later.
Is Prop 22 REALLY a California only thing?
There was an interesting headline in The Hill: “Uber, Lyft eager to take California labor win nationwide.“
In the article they quoted Uber CEO Dara Khosrowshahi as saying ““Going forward, you will see us more loudly advocate for new laws like Prop 22, which we believe strike the balance between preserving the flexibility that drivers value so much, while adding protections that all gig workers deserve,”
Whisky Tango Foxtrot????
Maybe I'll have to take back some of the advocacy I did during this whole campaign. Some had argued that they smelled a skunk, when it comes to a company trying to make a law to help itself that's never a good optic.
I had responded to some that yeah, this is different though. Prop 22 isn't out of the blue trying to change something as much as a response to AB5.
But that comment there, that's something different.
I'll say this much: They aren't doing this for our benefit. Prop 22 was never for our benefit. They made a lot of noise about how they want to take care of contractors. But think about it: if that's what they really wanted, why weren't they offering all this anywhere other than California? They don't need a freaking law to provide these kinds of terms.
So why does Uber and everyone want to take this nationwide? I'd say there's one of two things:
Things are better for them under Prop 22 than what they were before AB5 came around. I've speculated that I wonder if they sandbagged on AB5 just so they could get this. Like I said, I think this gives them an opportunity to provide more control and they want that nationwide.
The other is, maybe it's as much because it takes away the question marks. There are challenges all over, and if they can get laws that better define their space, that makes sense.
How does the Presidential Results Impact Us?
Is there anything that would be significantly different now that Joe Biden is president?
One thing I will tell you is that Biden is more pro labor. He came out strongly against Prop 22 and has expressed support for ProAct.
ProAct is national legislation that has already passed the House of Representatives. The Senate would still need to pass it and it would have to be signed by the President to become law.
The main thing that ProAct does that impacts us is it implements the ABC Test nationwide. In other words, it's pretty much California AB5 for everyone.
Say goodbye to being an independent contractor.
Biden has indicated he would sign ProAct. Trump would veto it.
I'm not sure it matters. As I write this the Republicans have 49 Senate seats, the democrats have 48. 51 are needed to have the majority. I think chances are high that the Republicans will win two of the three that are yet to be decided.
But here's the thing you have to remember from your Civics class, if you had one. Even if the Democrats control the Senate, things are set up so the minority party can still hold things up. Look up how Fillibusters work – and this is one area where I think the Republicans would be able to stop this thing from getting through.
The biggest area of Presidential influence: Enforcement.
Here's the thing. The President can't make the laws.
Doesn't mean they won't try, with executive orders. I'm not a fan how either of the past administrations have abused that, but that's another issue.
The President can push the agenda. They can have great influence. But they can only sign a law that's created by and passed through the legislative branch.
But the President can have a huge impact on how the government enforces the laws that are in place.
And this brings us back around to the whole Federal interpretation of whether a situation passes or fails the test of misclassification.
The thing is, the law is made in such a way that it has to be interpreted. I said it's subjective, right? It all comes down to who makes the decisions.
The President gets to put his people into those positions. (Or her people if Biden doesn't make it that long). And here's the thing, the Department of Labor has shifted to a very pro business stance these past few years because Trump controls that department.
This whole independent contractor thing won't fly under the radar so easily under a Biden run department of labor.
When election results mean a change in government departments, what does that mean for us who deliver for Grubhub, Doordash, Uber Eats, Instacart and others?
It means that Prop 22 passing isn't the end of the story.
In fact it's only just begun.
It means that there's a real possibility that gig work as we know it could still go away. I would lean far more towards that happening, and possibly happening before the next presidential election, than I would towards it not.
The federal government is going to be far less friendly to Uber, Lyft, Doordash and others.
They don't always have final say. Their decisions can be challenged in court.
I think the days of the gig economy are numbered. It's going to take time. Enforcemnt, rulings, court appeals, they all take time. It took the better part of a year for AB5 to come to a head. On the federal level, I think things are slower moving.
But if I had to put money on it, I think it's going away.
So what do we do?
Be thankful that it WILL take time.
But use that time well.
Double down on your ability to profit while you can do so.
And start putting together an exit plan.
Do not be like those who received all that extra stimulus unemployment money and who just thought that would just keep pouring in. Those that didn't prepare for the fact that the extra $600 per week would dry up were hurting when it did indeed dry up.
Don't be the California contractor who didn't take AB5 seriously, and nearly got shut down back in September if not for a last minute reprieve. Prop 22 could have gone either way, and if it had gone differently, where would they be now?
Read the writing on the wall. Determine where you want to go with life. Use this as an opportunity.
You have time. There's a ton you can do to prepare. Just don't let that time trick you into complacency.