As Grocer Plans to Replace Drivers, Observers Question Sufficiency of Prop. 22 Benefits.

Originally published by WorkCompCentral on January 13, 2021

"Yes, it is admirable that Prop. 22 is addressing these independent contractors' needs, but certainly the overall benefits for workers’ compensation purposes and other employment entitlements are not going to be what they are for employees.” Alan Gurvey

When some California workers’ compensation stakeholders learned that grocery giant Albertsons planned to lay off non-union delivery drivers and replace them with part-time independent contractors, they said they were frustrated but not surprised.

After all, they said, once voters passed Proposition 22 last November, it was only a matter of time before companies found a way to rely on workers who aren’t afforded the same benefits and protections as full-time employees.

“CAAA was against Prop. 22 for exactly these reasons,” said Diane Worley, executive director for the California Applicants’ Attorneys Association. “The protections added for drivers and independent contractors under Prop. 22 are extremely insufficient and don’t come close to the basic employment protections afforded to employees throughout the state, leaving millions of workers on the hook for any work-related injuries or incidents resulting in permanent disability.”

Prop. 22, which was approved by nearly 59% of California voters, exempts app-based driving companies from classifying their workers as employees. It was crafted in direct response to Assembly Bill 5, which lawmakers passed in 2019 to require companies to treat most workers as benefit-eligible employees.

Because their workers are not legally considered employees, app-based driving companies do not have to purchase workers’ comp coverage for their drivers. Prop. 22, however, does require these companies to offer some benefits in case of injury or death.

The companies are required to purchase occupational accident insurance to cover medical costs and lost income if a driver is injured while working. Policies are required to cover medical expenses up to $1 million and offer disability payments equal to two-thirds of the driver’s average weekly earnings as of the injury date. The companies also must purchase accidental death insurance to cover death benefits.

Prop. 22, however, does not require permanent disability benefits for drivers, nor does it spell out vocational rehabilitation requirements or anything resembling return-to-work programs like those found in the state’s comp system. 

Advocates poured more than $200 million into passing Prop. 22, making it the most expensive ballot measure in state history. More than $190 million of that came from app-based companies such as Uber, Lyft, DoorDash, InstaCart and Postmates.

“Uber and the other app-based companies that backed the proposition essentially bought themselves a new law to avoid paying for things like Social Security, workers’ compensation and disability insurance so they could continue to pad their profits on the backs of their drivers, who should be classified as employees,” Worley said. “The move from Albertsons does not come as a surprise, since the writing was on the wall, and I’m sure we’ll see more companies make similar moves to avoid paying for the basic protections their employees deserve." 

WorkCompCentral attempted to contact Pro-Prop. 22 group “Save App-Based Jobs & Services,” but an email address and phone number listed on the organization’s website no longer worked.

Media contacts for the app-based driving companies did not respond to requests for comment as of deadline Tuesday. Organizations that publicly supported Prop. 22 — including the Republican Party of California, the California Chamber of Commerce and the California Taxpayer Association — also did not reply to messages seeking comment.

Albertsons, the nation’s second-largest grocery retailer and owner of California chains Safeway and Vons, confirmed Tuesday that it was discontinuing its own grocery-delivery fleet next month and will rely on app-based driving company DoorDash to bring food to customers. 

Albertsons made the decision in early December, according to a company spokesperson, who said the change wasn’t in response to Prop. 22.

“We will transition that portion of our e-commerce operations to third-party logistics providers who specialize in that service,” spokesman Andrew Whelan wrote in an emailed statement.  “While we know that this move will help us create a more efficient operation, it wasn’t a decision we made lightly or without a great deal of consideration.”

Whelan said the move would allow Albertsons to stay competitive in the home delivery market, which has grown during the COVID-19 pandemic.

“Since the COVID-19 outbreak, our e-commerce business has risen to new heights and has become more strategically important to Albertsons Cos.,” he said. “Our goal is to truly make e-commerce a competitive advantage.” 

The company’s shares hit an all-time high Tuesday after CEO Vivek Sankaran announced stronger-than-anticipated third-quarter profits driven by rising digital sales, which include home delivery, according to Yahoo Finance.

Also on Tuesday, a group of app-based drivers sued to overturn Prop. 22, arguing that the law is unconstitutional because it prevents drivers from qualifying for workers’ comp benefits, the Associated Press reported.

Michael C. Duff, a University of Wyoming law professor and workers’ comp expert, said he has believed for years that the gig-based economy would eventually “colonize all of employment law.”

“We are now way, way beyond the once-typical gig employee as an extremely high-tech and mysterious software coder,” Duff said.

Prop. 22 has created an experimental hybrid worker who could be colloquially classified as “independent contractor plus,” where the worker isn’t considered a full-time employee but still gets some benefits, Duff said.

Though some stakeholders might consider it progress, it might not be sufficient for many workers, he said.

“Is this better than an independent-contractor-bare structure? Well, I suppose I’d rather have a needle in my eye than a spike,” Duff said.

In comparing Prop. 22 to workers’ comp, Duff said the proposition’s language makes it nearly impossible to tell what benefits drivers would get or how disputes would be settled.

“There is reference to a 66%-of-average wages figure, but then only maximum/minimum benefit ranges as set by the workers’ compensation statute,” he said. “Not only can I not tell how benefits would be calculated, I cannot even see who would do the calculating or how a legal claim would be brought. Who or what is there to do what a workers’ compensation board would normally do? Will we have comp-like cases tried in courts?”

Prop. 22 essentially negates the entire idea of what an independent contractor is, Duff said, and it passed in large part because many companies simply do not want to pay for employment benefits.

“Still, I might not be opposed if I had some way to assess the bottom-line impact on the typical injured worker,” he said. “Whenever I don’t see such a transparent cost-benefit analysis — or even an attempt at one — I become suspicious there is a cost shift underway: These folks will not be paid, and somehow another payer — the broader taxpayer — will be on the hook.”

Applicants’ attorney Alan Gurvey, managing partner of Rowen, Gurvey & Win in Sherman Oaks, said he also believes more companies will attempt what Albertsons has done now that Prop. 22 is law.

Gurvey called the development “not surprising” and echoed Duff’s suspicions that the proposition was created in part to avoid costs associated with employee status.

“There are a lot of cost savings, which aren't specifically associated with workers' compensation benefits, that result for a company that uses independent contractors instead of employees for services related to that company's business,” he said.

Gurvey said the logic that led to AB 5 was about providing more benefits to workers based on employment and services provided versus independent contractor services. Because of that, companies potentially would have to pay more in payroll taxes, he said. 

“Our system is set up in such a way that businesses, in order to survive, need to make money,” Gurvey said. “And profits are king. It doesn't mean that that's the way it should be, but that is the reality.”

In comparing Prop. 22 to the state’s workers’ comp system, Gurvey said the new law paled in comparison to what California’s full-time workers are offered, even if the system has its flaws.

“Yes, it is admirable that Prop. 22 is addressing these independent contractors' needs, but certainly the overall benefits for workers’ compensation purposes and other employment entitlements are not going to be what they are for employees,” he said. “Suffice it to say that, for workers' compensation purposes, clearly independent contractors under Prop. 22 will not be afforded the same protections, however decimated they have become over the last several years due to draconian legislation, as those provided by the Labor Code.”