C Gopinath

California vox populi

C Gopinath | Updated on December 02, 2020

How the state is tweaking gig economy rules

The stakes were high in the recent US presidential elections leading to record turnout. The aftermath also provided sufficient excitement for political experts to wonder what will the process for the presumptive winner to take over office from an obstinate loser. In the midst of all this, the voters in California voted on a range of propositions that influence various policies for the state. Two are of interest to our business readers.

Many states in the US allow their citizens to place ballot measures that initiate new legislation or challenge existing ones by popular vote. One such measure, called Proposition 22 in California sought to revoke legislation that called for contract, or gig, workers to be treated as employees. The impact is significant for an economy that relies on innovation and technology to fuel its growth.

‘Gig’ workers are essentially independent operatives who work on a contract with an employer that gives them the flexibility to pick a work schedule that suits them. Taxi hailing companies like Uber and Lyft, and other employers like DoorDash, which operate businesses for grocery and restaurant delivery, popularised this model.

This gig economy suited many; those who were looking for a flexible second job to make some extra money, or were in-between jobs and not really sure what they wanted to do next. I have been driven by Uber and Lyft taxi drivers who were university students and needed the money to pay tuition, or who had family responsibilities and therefore needed the flexibility to choose what hours they worked.

The ride hailing companies had an innovative solution utilising technology to serve a market need — matching people wanting to quickly find a ride with individuals with cars who had spare time and needed money. Car hailing companies promised that there was no need to own a car anymore even while they disrupted the taxi business.

However, these companies also attracted those who wanted full-time employment with its attendant benefits but were unable to find one. So when they took up gig work, they yearned for the missing benefits. Meanwhile the shrinking US labour union movement saw this as an opportunity to spread their influence in a sector that severely affected their membership.

A series of court cases began challenging how these companies operate. California lawmakers responded by making the gig workers’ employees entitled to job protections, health and other benefits undermining the business model. So, promoted by companies like Uber and Lyft, ‘Prop 22’ now overrode the law by a 58 per cent vote.

The victorious companies have assured their contract workers that they will work to provide access to subsidised health benefits and guarantee hourly earnings, a compromise that should have been worked out a long time ago.

The second proposition, called Proposition L, is even more intriguing. San Francisco city collects a tax on gross receipts from some businesses in San Francisco at a rate from 0.16 per cent to 0.65 per cent annually.

State law limits the amount of revenue, including tax revenue, the City can spend each year and authorises San Francisco voters to approve increases to this limit to last for four years. Proposition L, which passed by a 65 per cent vote would place an additional tax on some businesses in San Francisco when their highest-paid managerial employee earns more than 100 times the median compensation paid to their employees in San Francisco. A small stone thrown at runaway executive compensation.

These two examples of how the states’ intentions, business response, and the liberal population are bringing about changes that can affect business models but also provide a measure of flexibility that has made California attractive to innovators.

The writer is a professor at Suffolk University, Boston

Published on December 02, 2020

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