The fight over independent contracting is heating up again in the Golden State. Last month, the Service Employees International Union (SEIU) and allies petitioned the California Supreme Court to review a March court of appeals ruling that found the 2020 gig economy law known as Proposition 22 is enforceable.
The lawsuit is just the latest development in a protracted legal drama that has been playing out in the state regarding gig economy workers and whether they should be classified as employees or independent contractors.
This legal drama stems from a 2018 California Supreme Court decision that established a test, known as the ABC Test, to determine employment status. This test made it more difficult for companies to hire workers as independent contractors, the backbone of many gig economy businesses. Despite upending decades of legal precedent in the state, this test was later codified into law under AB 5.
In response, California voters overwhelmingly approved Proposition 22 in 2020. This ballot measure specifically defined app-based transportation and delivery drivers as independent contractors, exempting them from reclassification. Almost immediately this was challenged in court, with critics declaring the new law “unconstitutional.” Since then, the topic has continued to bounce around California courts, with the SEIU’s appeal to the California Supreme Court being the most recent example.
Unfortunately, this legal drama continues to be a significant headache for the numerous California ride-sharing and food delivery companies who do business in the state and eagerly await a final court decision. That decision could have significant implications for the roughly 1.4 million California gig economy workers (exact estimates vary) employed by these companies.
The core issue is whether gig economy workers should be classified as employees or independent contractors under the law. Presently, most gig economy workers in the state are treated as independent contractors, meaning they only work for companies on a contractual basis. These terms afford them greater flexibility over their work schedules. However, independent contractors are not entitled to the same benefits, such as tax withholdings and paid time off, as traditional employees are. Some labor unions and special interest groups find this unfair and advocate for reclassifying these workers as employees.
Reclassifying these workers would damage the gig economy business model. Many ride-sharing and food delivery companies like Uber, Lyft and DoorDash depend on the staffing flexibility independent contracting provides them. Consumer demand fluctuates greatly within their specific industries, making it essential they have an agile workforce that can respond quickly to day-to-day changes.
Reclassifying workers would also undermine a model that plays a significant role in the economy. A 2021 Upwork study found that 36 percent of Americans, or some 59 million people, work as freelancers. Together, they contribute $1.3 trillion in annual earnings to the U.S. economy. That amount is only likely to grow as more Americans opt to work on a contractual basis. Indeed, a 2019 IRS report suggests that the rise of independent contracting may “represent a structural shift in the labor market.”
Independent contracting is also extremely popular with Americans and among California residents themselves. A 2021 study by Pew found that 62 percent of Americans believed that gig economy workers should be classified as independent contractors. And in 2020 when Californians voted to approve Proposition 22, they did so by a 17-point margin, making it clear that they support the right of people to choose their working arrangements.
This high level of support for independent contracting is also shared by workers. A 2020 Morning Consult survey found that 71 percent of independent contractors reported that “the freedom of being an independent contractor outweighs the benefits of being an employee.” A separate 2021 independent research survey of California drivers and delivery workers found that 88 percent were “Happy Prop 22 passed,” with 76 percent stating the measure benefited them personally. These workers also expressed support for the idea that independent contracting serves as a better alternative to being employed on a “full-time, fixed schedule.”
It should come as no surprise that workers view independent contracting so favorably. The unique flexibility that this unconventional working arrangement provides makes it attractive to a growing share of Americans.
California’s 1.4 million independent contractors deserve to decide which working arrangement they prefer. They shouldn’t have to wait for others to decide for them.
Nate Scherer is a Policy Analyst with the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit us on www.TheAmericanConsumer.Org or follow us on Twitter @ConsumerPal.