What Happened in California Is a Cautionary Tale for Us All

A voter-approved measure strips gig workers of basic protections enjoyed by employees in other businesses.

What happened in California? Despite the state’s liberal reputation, voters there last week approved Proposition 22, a ballot initiative exempting many gig companies from state workplace laws and stripping their workers of basic, essential protections.

Uber, Instacart, Lyft, DoorDash and other on-demand providers of ride-shares and food and grocery deliveries spent $200 million pushing the proposal, an astounding sum that workers and their allies couldn’t remotely hope to match. Not surprisingly, Californians were misled by an avalanche of claims about the proposal’s impact on workers. The measure, which takes effect next month, was approved with 58 percent of the vote.

Emboldened by the results in California, Uber and friends are apparently planning to take the show on the road. Potential targets could include Massachusetts or New Jersey, where state regulators have pursued them, or New York or Pennsylvania, where courts have rejected the argument by gig companies that workers run their own independent businesses. The rest of us need to understand what happened in California.

What was at stake with Proposition 22 was whether workers for app-based driver and delivery companies would be considered employees under California statutes, which like workplace laws nationwide, cover only employees, or whether they should be classified as independent contractors. Proponents argued that requiring gig companies to follow current laws would badly damage their on-demand business model and result in longer wait times, higher prices and the loss of countless jobs. These were the same bleak prognostications gig companies made about the minimum wage for drivers that New York City enacted two years ago — predictions that did not come to pass.

What they didn’t say was that it was a terrible deal for workers. Allowing companies to write their own exemption from California law is also a cautionary tale for our fragile democracy.

Now, workers for these gig companies in California will not have a right, as employees do under state law, to paid sick days, overtime pay, unemployment insurance or a workplace covered by occupational safety and health laws.

How did these companies persuade California voters to approve this snatching of rights from thousands of vulnerable people? They used a deluge of money to convince voters that the proposal served workers’ interests by preserving their flexibility, ensuring a guaranteed level of pay and providing them with “portable” benefits.

Their claims were deceptive.

There’s no law prohibiting flexible or part-time hours for employees. Millions of employees already work part-time or flexible hours. Indeed, these particular industries (ride-share and food delivery) would be unlikely to hire only full-time employees because of the ebb and flow of customer demand.

Under Proposition 22, gig companies will have to pay their contractors 120 percent of the state or local minimum wage. In addition, companies must pay 30 cents per mile for gas and other vehicle-related expenses, adjusted annually for inflation.

But here’s the catch: Workers will be paid only for “engaged time,” defined as the time between receiving a request and dropping off the passenger. This is far less than what’s required under laws for employees, who must be compensated for all work time. About a third of drivers’ work time wouldn’t fall within this definition of “engaged time,” according to a study funded by the companies themselves. Workers will not be paid for time spent getting gas, waiting for a ride request or cleaning and sanitizing their cars.

Plus, 30 cents per mile doesn’t cover all vehicle-related expenses; by comparison, the Internal Revenue Service’s optional standard deductible rate for the costs of operating a car for business is 57.5 cents per mile. And as independent contractors, drivers won’t have a right to overtime pay for long workweeks, as is required for employees. In light of all this, a study by three research groups at the University of California, Berkeley, found that Uber and Lyft drivers would be guaranteed only an estimated $5.64 per hour. This no doubt would have surprised 40 percent of those in a survey of early voters who said they had supported Proposition 22 to ensure workers earned livable wages.

Finally there is the issue of benefits. Gig companies have used snazzy “portable” benefits language, but Proposition 22 gives workers crumbs compared to what it takes away. Companies must provide a “health care subsidy” to people working at least 15 hours of “engaged time.” At 30 weekly hours, the subsidy would average about $1.22 per hour, or just over $36.00 a week, according to one analysis, a paltry sum compared with what workers would receive as employees who are paid for all of their work time — not just two-thirds of it.

And of course, rights are meaningful only if they are enforceable. If a company pays less than what’s required, shaves hours or doesn’t pay the health care subsidy, Proposition 22 is silent about what mechanism workers can use to enforce those pay and subsidy rights.

The kicker? Unlike most laws, which require only a majority vote of the State Legislature to revise, Proposition 22 requires the vote of seven-eighths of the Legislature to make any changes.

These are the truths that can be buried by well-funded advertising campaigns of large corporations collaborating to write their own rules. And this, in the end, is what’s most dangerous about Proposition 22. Companies shouldn’t be able to do this. Surely, lots of other industries would like to avoid paying unemployment insurance taxes, sick days or overtime. Surely, food manufacturers would like an exemption from safety requirements and inspections, and chemical companies would save a bundle if they got an exemption from environmental laws.

But that’s not how our system is supposed to work.

California has always been a bellwether. This time, let’s not follow its lead.

Lyft’s I.P.O. Was a Huge Success, Just Not for Investors Who Bought on Friday

Lyft’s stock market debut has set up its founders, employees, early backers and even those who scored shares in the initial public offering Thursday night for quite a windfall.

But not everyone who invested in the company is reaping the spoils.

Shares of the ride-hailing company rose nearly 9 percent on Friday. At over $26 billion, Lyft’s market value is almost double what private investors valued it at less than a year ago.

But Lyft’s first-day gain is measured off the I.P.O. price (which was set on Thursday, when shares were divided up mostly among large funds). Ordinary investors who wanted in had to wait to buy the stock until it was available on public markets on Friday, and at a much higher price than the big funds paid.

And those who bought as soon as trading began are already sitting on losses of a little more than 11 percent.

It serves as an important reminder that amid all the hoopla around trading debuts, small investors wind up taking a lot of the risk. Most of the gains on the first day of trading for a stock are realized with the first trade.

Over the past decade, companies listing shares on American stock exchanges have increased 14 percent from their I.P.O. price, according to Dealogic. But nearly all of the rise has come at the opening trade.

That dynamic has played out in many of the prominent I.P.O.s in recent years. Facebook shares opened 10 percent higher on their first day of trading and then proceeded to give back almost all those gains to finish essentially unchanged for the day.

Etsy was an extreme example of this. Its stock soared 94 percent on its first day of trading, but investors who bought at the open actually lost 3 percent by the close of trading.

And it’s not just tech companies. Levi Strauss recently made its return to the public markets, selling shares to investors at $17 a piece on March 20. The stock opened the next day at $22.22, a 31 percent jump. For the rest of trading that day, though, it climbed less than 1 percent.

Of course, if Lyft keeps growing as fast as Wall Street hopes it will, or works out how to turn a profit, then even the latecomers could wind up with respectable returns. Facebook shares are up more than 300 percent since their first day of trading, and after Etsy struggled for its first three years as a public company, its shares have more than doubled since they started trading.

Still, not being able to buy at the I.P.O. price also greatly affects returns over the next year. Investors who bought shares at the offering price have averaged a 22 percent increase over the past decade. Returns for those that bought at the open? Sixty percent less.