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Gig Economy Wins Big on Election Day

The ride sharing economy has been given a lift by the passage of Proposition 22 in California. The sharing economy has been challenged for being unfair in utilizing a 'go to market' strategy that involves using independent contractors to make their services available. Independent contractors provide their own equipment — in the case of Uber and Lyft — their car. These drivers set their own hours, determine where they work, and control other elements of their work environment. In return, drivers are compensated a percentage of the revenue they generate. There have been public concerns as well, as some drivers believe they were being exploited as independent contractors.

The California appeals court supported lower court rulings that Uber and Lyft drivers must be employees. The cost of employees versus independent contractors is significant, when you take benefits, including insurance, into consideration. In an attempt to save their business model, Uber, Lyft, Instacart, DoorDash, Postmates, and others provided around $200 million of funding to pass Proposition 22. Proposition 22 was designed to provide a level of employment somewhere between an independent contractor and traditional employment status. Gig economy workers can now receive a small stipend to help pay health insurance, but nothing like paid sick leave, unemployment insurance, and other basic protections that workers in California receive under state labor laws.

In response to the passage of Proposition 22, the stock price of these companies rose. Many believe the large investment in Prop 22 saved the gig economy business model in California. "In essence the underlying business models for Uber and Lyft were hanging in the balance if Prop 22 did not pass in California to keep the contractor model," noted by Daniel Ives, Wedbush analyst. Many drivers for Uber and Lyft and other gig economy firms indicate that they like their personal freedoms and work as they do for lifestyle and short-term income replacement.


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