The views expressed herein represent the views of a majority of the members of the Caravel’s Editorial Board and are not reflective of the position of any individual member, the newsroom staff, or Georgetown University.

Proposition 22 hurts workers and weakens their rights and benefits, particularly those working for companies like Uber, Lyft, and Doordash.

California’s recent vote on Proposition 22 left gig workers out in the cold. Winning 58 percent of the vote, “Yes on 22” rebuked labor unions’ and gig workers’ attempts to increase protections for drivers who contract for apps like Uber, Lyft, and Doordash. After the vote, national headlines accused voters in California of accepting—willingly or ignorantly—corporate exploitation of gig workers.

The battle over the employment status of gig workers began in September 2019 when the California State Assembly passed Assembly Bill 5 (AB 5). The bill required companies that depend on contract work in their business model, like Uber and Lyft, to define their workers as employees. Doing so would grant the workers legal rights to benefits including health care, paid sick leave, and family leave. Labor unions and advocates hailed the passage of AB 5 as a win for contract workers and a possible landmark bill for the growing gig economy, but Proposition 22 put a halt to the hope that California could become a model for gig economy reforms.

Arguing that AB 5 would hurt hail-ride drivers and their users, Uber, Lyft, and Doordash paid $200 million to fund Proposition 22, the most expensive ballot measure contest in state history. The three companies were the only funders of the proposition.

Uber and Lyft demonstrated how corporations can utilize their financial resources to sway public opinion in their favor, and they struck a blow against California’s strong labor union system. Furthermore, the proposition allows these companies to continue the exploitative business practices that AB 5 attempted to prevent.

Advocates against Proposition 22 argued that it would provide insufficient worker protections, including no access to overtime pay, no healthcare coverage, and no guaranteed minimum wage. The companies supporting the proposition claimed that it protected the jobs of hail-ride workers and efficiency for consumers, who could otherwise experience delays or price-hikes in order for companies to comply with AB 5.

This efficiency, of course, now means paying drivers less than the minimum wage and denying them the right to unionize. Proposition 22’s proposed “portable benefits” are but crumbs compared to protections afforded real employees. California is now the national example in codifying the industrial gig economy—in the wrong way. It sacrificed the labor rights of a growing, precarious new class of workers for the convenience of the independent contractor model, no matter its costs.

Gig and Take

Carter and King Jazzing Orchestra performs a “gig” in Houston. (Wikimedia Commons)

Jazz musicians in the early 1900s coined the term “gig” when referring to their performances, but the term evolved to be associated primarily with freelance, part-time work as large companies in the 1940s began offering temporary “gig-type” jobs to meet wartime labor shortages.

The launch of several large platforms and app-based services—Craigslist in 1995, Airbnb in 2008, Uber in 2009, and Lyft in 2012—brought millions into the “gig economy,” a term that became increasingly more popular as workers searched for new or additional sources of income during the Great Recession.

While approximately 10 percent of the U.S. workforce was employed in the gig economy in 2005, that number skyrocketed to 34 percent by 2017, and (prior to the pandemic) was projected to increase to 43 percent by 2020.

Gig economy jobs, as opposed to “traditional” jobs, attract workers for various reasons, including flexibility, autonomy, and more readily available job opportunities. Ride-hailing services like Uber and Lyft attract customers due to the convenience of connecting with nearby drivers in real-time, the ability to reference driver ratings, and the variety of riding options—all wrapped into an easy-to-use app.

However, gig economy jobs have faced backlash from traditional workers in other sectors. In Europe, many taxi drivers harbor antipathy towards Uber for taking much of their business. In 2016 and 2017, taxi drivers went on strike to protest Uber, and drivers in Italy and France demanded the removal of the company from their countries. Despite taxi drivers’ efforts, Uber has not gone anywhere.

Uber and Lyft have faced backlash in the U. S. as well. More than 1,000 Uber and Lyft drivers protested their low pay and poor working conditions by bringing traffic to a halt during rush hour in Manhattan on September 17, 2019. A few months before that, as Uber prepared to release its initial public offering, thousands of drivers went on strike to protest the low wages and lack of benefits. Uber’s stocks debuted well below its IPO price. With the passage of Proposition 22, the protests may not end anytime soon.

Labor Rights and Labor Wrongs

Taxi drivers protest Uber and Lyft in Portland, Oregon. (Wikimedia Commons)

One of the primary ways the gig economy has sidelined workers is by designating them as contractors. In the United States, employees are entitled to a variety of protections such as minimum wage, medical leave, healthcare, unionization, overtime pay, and breaks at regular intervals.

Such protections do not apply to contractors. The narrative that Lyft and Uber push most heavily in labeling their workers “contractors” is that workers can work when and where they choose, and they can exercise discretion when selecting clients.

Under federal law, contractors retain certain rights, such as negotiating their own contracts, controlling which contracts they accept, and working for multiple businesses at once. Under contractor designation, gig workers should be able to choose their own routes, set their own prices, use multiple gig apps at the same time, and wait for surge pricing before seeking customers.

Uber and Lyft drivers, however, have none of these rights.

The corporations have skirted these regulations by labeling their drivers contractors to individual passengers and not to the companies themselves. (The National Labor Relations Board and the Department of Labor concluded last year that Uber and Lyft apparently do not exercise employer-level control over their drivers. That’s a bold lie.) As a result, gig workers’ rights as contractors are significantly reduced by their commitment to a given corporation. They exist in the overlap between contractors and employees, forced to comply with the restrictions on both while benefiting from the protections of neither.

These corporations often infringe further on gig workers’ rights by skimming off the top of workers’ profits. Uber and Lyft both reserve the right to a finder’s fee for drivers, thus docking portions of the passenger’s payment to turn a profit. In many cases, this practice pushes drivers’ wages significantly below local minimum wages. A study from economists James Parrott and Michael Reich concluded that, after subtracting expenses, Uber drivers in Seattle earn only $9.73 an hour—far below the Seattle minimum wage of $16.69.

Uber and Lyft are already taking action to preserve their workers’ lack of rights. The corporations hailed the passage of Proposition 22 in California as a model for future legislation nationwide; drivers, many of whom had publicly protested Uber and Lyft practices, viewed it as a concerning harbinger for the future of their already weakened rights.

Who You Gonna Call? Trust Busters

In exploiting the grey area between employees and contractors, Uber and Lyft have opened themselves up to a different legal criticism entirely.

Marshall Steinbaum, a labor economist at the University of Utah, submitted a brief to the House Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law over the course of its antitrust investigation into Google and Amazon. In his brief, Steinbaum argued that federal regulators should expand their antitrust investigations to consider gig economy firms including Uber and Lyft.

A cartoon from the Puck magazine in 1902 depicts Uncle Sam shining a flashlight labeled “Congressional Legislation” onto a trust, all of whose books are padlocked. Uncle Sam says, “You’re a powerful big man, and you have your uses. But if you're hon… — A cartoon from the Puck magazine in 1902 depicts Uncle Sam shining a flashlight labeled “Congressional Legislation” onto a trust, all of whose books are padlocked. Uncle Sam says, “You’re a powerful big man, and you have your uses. But if you're honest why do you hide in the dark? - Open up those books!” (Library of Congress)

To Steinbaum, the restrictive requirements imposed by Uber and Lyft on their allegedly independent contractors are just another version of the “vertical restraints” practices made illegal by U.S. antitrust law.

“Vertical restraints” are best described as agreements between entities, firms or individuals at different levels of a production/distribution process that restrict the entity’s ability to engage in free market competition. For example, Uber, a company with a service, sets the price that their drivers, individual distributors of that service, charge for rides.

Echoing various court rulings against oil companies in the mid-1900s that relied on similar networks of independent distributors, Steinbaum effectively situates the plight of independent contractors within this antitrust legal framework.

In the 1960s, the Union Oil Company of California fixed the price at which their distributors had to sell their oil. The Supreme Court found that illegal in a 1964 ruling: “Dealers are coercively laced into an arrangement under which their supplier is able to impose noncompetitive prices on thousands of persons whose prices otherwise might be competitive.”

While such an arrangement between an oil company an d a single contractor was not necessarily illegal, the Court agreed that imposing such arrangements on such a vast scale, with thousands of contractors, effectively distorted the market for oil and gave Union Oil undue market power.

It’s common knowledge that Uber and Lyft do that, too. Since drivers are independent contractors, they cannot bargain for anything more than the ride price that Uber and Lyft set. This price-setting power against both consumers and contractors, on a large scale, mimics how Union Oil Company fleeced its distributors. It allows Uber and Lyft to “widen the wedge between what consumers pay and what service providers earn,” said Steinbaum.

A district court also declared in 1951 that it was illegal for the Richfield Oil Company to prevent its independent contractors from dealing with other oil companies. Despite that precedent, Uber and Lyft prevent drivers from switching between apps to choose the ride offer that pays them more.

Uber penalizes drivers for choosing to decline rides in expectation of higher prices during high-demand “surge” hours. Uber and Lyft also force drivers to take certain routes, penalizing them if they refuse. Steinbaum sees these practices as “akin to exclusive dealing and exclusive supply contracts respectively, forcing dealers to forego more profitable opportunities in favor of those that take place on the dominant firm’s terms.” The drivers cannot choose whom to work for, nor what contracts to accept, negating the very concept of contractor independence.

Perhaps most insidiously, Uber and Lyft use algorithms to pay their drivers, which Steinbaum argues “is also analogous to market division or territorial restrictions in the antitrust context.”

He concludes that Uber and Lyft have exploited the law in ways that are “useful for evading labor laws that hinge on direct control and can be gamed with the simulacrum of choice on the part of workers.”

The Efficiency Argument: Or How Companies Learned to Stop Worrying and Love Antitrust Laws

In April, the city of Seattle issued a collective bargaining ordinance that allowed independent contractor drivers to unionize and required companies like Uber and Lyft to engage in collective bargaining with these new unions. The U.S. Chamber of Commerce sued Seattle, arguing that allowing drivers to unionize amounted to price-fixing and therefore violated federal antitrust law.

The Chamber of Commerce won the case at the Ninth Circuit Appeals Court, and Seattle did not proceed with its plan to let drivers unionize.

In fact, there’s a long history of U.S. corporations and business interests deploying antitrust laws against unions, mostly before the 1930s. This anti-union, allegedly pro-consumer version of antitrust returned with a vengeance only recently, under the shield of economic “efficiency.”

In 1977, the U.S. Supreme Court decided in Continental Television v. GTE Sylvania that “vertical restrictions promote interbrand competition by allowing the manufacturer to achieve certain efficiencies in the distribution of products.” According to Steinbaum, it was the first time that the idea of “efficiency” was brought up in an antitrust case.

That argument was apparently compelling. And it changed antitrust law enforcement.

“The net effect of the post-Sylvania vertical restraints jurisprudence,” argues Steinbaum, “was to create a wedge between the legal and the economic definitions of the firm: suppliers can legally outsource their distribution while retaining economic control over it, without running afoul of antitrust”—all because it was “efficient,” and therefore desirable.

Since 1979, shortly after Sylvania was decided, worker productivity—“efficiency”—has grown six times more than worker compensation. (Economic Policy Institute, Bureau of Labor Statistics)

That’s where we are today. Economists have lauded how “efficient” Uber and Lyft are for consumers. Uber itself advertises just how “efficient” it is for consumers and drivers alike. And a majority of California voters were sufficiently pleased with Uber and Lyft that they voted yes on Proposition 22 to let them continue being “efficient.”

What We Owe Our Workers

California voters had to choose between recognizing drivers as full employees or as independent contractors. But what if the binary choice itself was a flawed one?

For that exact reason, the Los Angeles Times Editorial Board refused to endorse Proposition 22, arguing that gig economy workers deserve their own category of work, as “independent workers who choose jobs made available through a variety of intermediaries.” No matter how “efficient” Uber and Lyft actually are, the Board still thought that legislators needed to “design a system that [delivers] a set of protections for these workers that were the functional equivalent of the ones for employees.”

Arguably, then, Steinbaum and the Los Angeles Times share the same critique of the gig economy: firms that exercise economic control over their distributors should be held legally responsible for providing the benefits of labor owed to those distributors.

“Efficiency” is no excuse: Uber and Lyft cannot claim control over their drivers’ wages, routes, and choices without negotiating over that control with drivers themselves. Vertical restraints require vertical obligations.

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