California has rejected a major gig economy reform, leaving workers without employee protections

Proposition 22, created to decide the future of the California gig economy, has passed.

The proposition concerned whether app-based drivers for companies like Uber and Lyft are employees or independent contractors. And its success, which the Associated Press called before midnight Wednesday PT, means those companies will effectively be exempted from a California law that would have pushed such drivers to be classified as employees.

The decision is a major win for gig companies that cements their influence over state policy. And it is a serious loss for gig workers hoping for stronger workplace protections as well as labor advocates in other states hoping California could become a model for gig economy reforms. While this proposal concerned California, the question is one of national importance as it could hint at how other cities and states might handle this same issue in the future.

Proposition 22 isn’t the first time California has weighed whether these workers are independent contractors or employees; it comes on the heels of a California law passed last year called AB 5. That legislation created more stringent standards for classifying someone as an independent contractor, expanding on a previous decision from the state’s Supreme Court.

At the time, AB 5’s passage was a big deal and was considered a major win for labor advocates. “The pride of California is tech. Now they’re passing a law that says these people are your employees, and you need to take care of them. It shows that labor unions and activists have a lot of pull,” then-Illinois Institute of Technology labor law professor César Rosado Marzán told Vox last year when the law was approved.

While this law includes exemptions for some types of work, drivers for companies like Uber and Lyft were not included in those exemptions and were expected to fall under the law’s purview and be considered employees.

But that didn’t stop companies like Uber and Lyft from continuing to treat their drivers as independent contractors, a move that again pushed the matter to the California courts, where these tech giants hoped to wriggle out of the law’s provisions. But after an appeals court recently affirmed that these companies must start treating their drivers as employees, Proposition 22 became one of the final opportunities for these companies to keep their drivers from being considered employees and preserve their longtime business model.

Against Proposition 22 were labor organizations that said ride-hailing drivers deserve the protections of employee classification, like sick leave and health care, and that the current approach of companies like DoorDash, Lyft, and Uber exploits drivers. They argued that Proposition 22 will potentially leave drivers with pay below the minimum wage, prevent them from accessing overtime, and provide insufficient health care protections.

Before the November 3 election, polls did not indicate a clear Proposition 22 preference among California residents. But major national politicians did chime in, with Democratic presidential and vice presidential candidates Joe Biden and Kamala Harris, as well as Sen. Bernie Sanders, all urging people to vote against the measure.

Supporting Proposition 22 were the gig economy giants, who argued that treating their drivers as independent contractors as employees would hurt the ride-hail industry, reduce jobs, and limit drivers’ opportunity to work for multiple companies. Uber, for instance, had warned that forcing the company to classify drivers as employees could mean small cities’ prices could as much as double and would drastically reduce the number of people who drive for the service.

Importantly, the Yes on Prop 22 campaign was heavily funded by these companies; about $200 million overall had been spent in support of the initiative as of mid-October. Millions of dollars went into Facebook advertisements alone. And some went further, with Uber pushing pro-Proposition 22 content inside of the driver version of its app (that move also prompted a lawsuit).

These efforts were apparently enough: Voters decided the law should not apply to these ride-hailing companies. With their business model secure, Uber and Lyft are certainly celebrating. But without the promise of employee protections, drivers hoping to secure better benefits and working conditions must now weigh their next steps.