Proposition 22 turned out to be a good investment.
The ballot measure to keep ride-hail drivers as independent contractors costs its backers more than $205 million, but two of them, Uber and Lyft, saw their shares leap Wednesday morning as investors rewarded them for its passage.
Uber saw its stock rise 14% Wednesday, adding nearly $9 billion to its market value and all but erasing the losses the San Francisco company has seen this year as it battled both the coronavirus pandemic and California regulators’ attempts to rein in what has been a free-wheeling gig economy. Its smaller hometown rival, Lyft, also saw its value increase by nearly a billion as its shares rose 11%.
Prop. 22 amended a state law, AB5, which took effect in January and made it harder for companies to argue that their workers should not be hired as employees. Alongside meal- and grocery-delivery companies DoorDash, Postmates and Instacart, Uber and Lyft spent heavily on the Yes on 22 campaign to create a new status for ride-hail drivers and couriers that carries some wage guarantees and benefits but not the full protections or legal requirements of employment.
The measure’s backers argued that they and workers rely on independent contractor status for its flexibility, including drivers and couriers’ ability to work for multiple companies and set their own hours. Critics said employee status did not foreclose those options. Analysts agreed that hiring drivers and couriers as employees could add hundreds of millions of dollars in labor expenses, cutting into the companies’ already thin profit margins.
Uber and Lyft had threatened to leave California if Prop. 22 failed, or drastically limit service to cities and suburbs where ride demand is denser.
Their battle here has nationwide ramifications. Other states, as well as Congress are weighing ways to tighten classification of employees. The companies hope that their California victory can serve as a model for a new class of worker — an independent contractor with some of the trappings of an employee. In Canada and other countries, this new class of worker is called a dependent contractor.
“California’s new law is a groundbreaking step toward the creation of a ‘third way’ that recognizes independent workers in the U.S., called for by legislators, policymakers, labor leaders and policy think tanks for years,” Lyft wrote in a press release.
DoorDash CEO Tony Xu made a similar point.
“We’re looking ahead and across the country, ready to champion new benefits structures that are portable, proportional, and flexible,” he wrote in a blog post Wednesday. “We look forward to partnering with workers, policymakers, community groups, and more to make this a reality.”
Jesse Jauregui, a partner in law firm Alston & Bird’s Labor & Employment Group, also saw the national implications.
“With Proposition 22, the California electorate has effectively classified ride share drivers as a legal category of gig economy independent contractors, a major win for companies such as Uber and Lyft,” he said in an email. “Legal pushback may continue, but Proposition 22 sets the tone for other states to follow in recognizing gig workers as a central part of today’s economy and the future of work. Proposition 22 is pointing to a new ‘third way’ of structuring the nature of work and may become the model for other gig workforces to follow.”
The companies still must contend with legal challenges over their drivers’ status.
Uber and Lyft face a lawsuit that California and the city attorneys of San Francisco, San Diego and Los Angeles filed in May over driver classification. In October, an appeals court upheld a preliminary injunction from the San Francisco Superior Court judge in that case to force immediate reclassification. It is slated to take effect in January.
The lawsuit could well continue now that Prop. 22 has passed, because the government can make a case that the companies were violating AB5 up until the measure takes effect in mid-December.
California’s labor commissioner is suing Uber and Lyft for committing wage theft by “willfully misclassifying drivers as independent contractors instead of employees.” Instacart faces an AB5 misclassification suit filed by the San Diego city attorney, while DoorDash faces a similar one filed by the San Francisco district attorney.
All those cases could take a year or more to make their way through the courts. It’s possible the companies would seek settlements to clear the landscape for their operations.
Chronicle business editor Owen Thomas contributed to this report.
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