When AB5 was passed, there was justified concern over the threat of losing the ability to utilize independent contractors (ICs). Would this destroy the IC model of business? Thanks to the lobbying of app-based companies Uber, Lyft, DoorDash, Postmates and Instacart, Prop 22 was passed, which helps provide clear guidelines for businesses that leverage apps for some component of their business. Now, companies that have traditionally contracted with ICs have a clear path to not only upholding this business model, but in some cases being able to revert back to the IC model, where they may have been previously forced to form employee relationships.
Prop 22 outlines the criteria required for the company and IC relationship and outlines the guidelines which will need to be adhered to. A few of the key considerations include:
Right from the beginning, there is a focus on app-based companies and their workers. This is unsurprising, as the parties that funded the legal battle are the top transportation and delivery companies in the gig economy. This means first and foremost that this legislation can only be taken advantage of by companies that use apps. Due to this fact, it is paramount that anyone who is operating in California or any company that wants to take precautionary measures sets up a dispatch app to assign routes to their ICs.
Aside from that, the goal or the proposition is protecting the control and flexibility of drivers to choose their hours. This includes the ability to decline offered jobs without penalty, as well as the ability to work for whomever else they choose, except during contracted time. There may be considerations needed to be given here if there are any non-compete clauses in your contracts.
Setting out pay structures for compensation is also important, guaranteeing a minimum wage of at least 120% of state or local minimum wage (whichever is higher). This is a rate that will likely be surpassed by most ICs and logically is more of a provision for gig-economy workers. However, additional regulations have been introduced, such as calculating earnings on a bi-weekly basis and how to calculate minimum wage, which is based on pickup location.
Healthcare coverage was probably one of the most controversial parts of AB5 when it was introduced. Most companies are familiar with occupational accident, general liability, in-service liability among others, however, Prop 22 also outlines requirements for ICs working over 15 hours to begin earning personal healthcare contributions, scaling up to 100% cost coverage at 25 hours worked per week. There are additional considerations included such as contributions being able to be made by multiple companies that ICs are contracting with, but this is by far the most robust and contentious portion of the legislation.
Most of the guidelines provided seem like very logical rules that most companies should already be following if they are truly working with ICs in the proper manner. The goal is to protect the ability of app-based rideshare and delivery drivers to have flexible schedules with complete control over when, where, how long and how they work.
The protection of the IC model of flexibility, the minimum compensation structure and health care coverage are the three largest considerations, however, there are many more provisions included in the proposition. Although the onset of these guidelines is still pending implementation, smart companies will get ahead of the curve and work on a plan of attack to make sure there is no risk when Prop 22 becomes the law of the land. Take advantage of this opportunity and allow Openforce to help guide you through best practices and how to take advantage of this new legislation with our Prop 22 toolkit.