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In California, Gig Companies Win the Best Contracting Law Money Can Buy – Non Profit News

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November 4, 2020; New York Times and Los Angeles Times

It was the best initiative $205 million could buy, with Uber, Lyft, Instacart, and DoorDash forking over most of the cash in the most expensive initiative campaign in US history. Given that California is home to an estimated one million gig ride-hailing service workers, that expenditure works out to about $205 per worker.

And now, the voters of California, by a 58-percent majority, have given their assent to creating a new, highly permissive labor law regime that allows gig economy companies to continue treating drivers as independent contractors, vitiating state law and a state supreme court decision that had said otherwise.

Uber, Lyft, Instacart, and DoorDash designed the measure to exempt themselves from a state labor law that would have compelled them to treat their drivers as employees and cover standard employee costs for healthcare, unemployment insurance, and other benefits.

New York Times reporter Kate Cougar adds that, “As a concession to labor advocates, the initiative offers a wage floor and limited benefits to drivers.” But the benefits are less than they appear. Writing in the Los Angeles Times, Taryn Luna reports that the legislation “requires the companies to provide an hourly wage for time spent driving equal to 120 percent of either a local or a statewide minimum wage. It also requires that drivers receive a stipend for purchasing health insurance coverage when driving time averages at least 15 hours a week, a stipend that grows larger if average driving time rises to 25 hours a week.”

But, Luna adds, “work hours only include time spent driving to, picking up and carrying a rider, or delivery to a destination, not the time spent waiting in between trips. The measure’s passage means workers for ride-hail and delivery companies will receive weaker benefits than they would have under a state law approved last year.” A University of California, Berkeley labor center study found that when full time spent working (including wait time) was counted, the guarantee amounts to $5.64 an hour, less than half the state minimum wage.

L.A. Times business columnist Michael Hiltzik, who noted, as NPQ has before, that the ride-hailing firms effectively have employed a classic business strategy of pricing services below cost (and thereby being able to earn monopoly profits after competitors are driven out of business), was caustic in his denunciation of the measure.

The work environment may never be the same, in not a good way at all.

The bottom line is that these money-losing companies secured themselves the latitude to keep scratching after elusive profits by exploiting workers by sticking them with expenses including fuel, vehicle upkeep, and insurance, while denying them compensation and unemployment benefits, the assurance of a living wage, and the right to unionize.

Even worse, they immunized themselves from legislative oversight by writing in a provision requiring a seven-eighths vote of the membership of both legislative chambers to alter Proposition 22. That’s an almost insurmountable threshold.

On Wednesday, after the election result was announced, Uber’s stock price climbed more than 14 percent, and Lyft’s was up more than 11 percent at the close of trading. Uber’s stock market capitalization as of Wednesday’s stock market close was $71.84 billion, rising from $35.27 to $40.66 a share. The 14.59-percent climb in value implies an increase in company value of $9.15 billion in a single day. Not a bad return for its estimated $57 million-plus investment in campaign expenditures.

Cougar notes the obvious national implications: “With the gig work model cemented in California, Uber and other gig economy companies are expected to pursue federal legislation that would protect them from similar employment laws in other states.”

And just in case you think Cougar is engaging in idle speculation, Tony Xu, CEO of DoorDash, confirmed in a written statement that this is exactly what the gig employers want to do: “Now, we’re looking ahead and across the country…we look forward to partnering with workers, policymakers, community groups, and more to make this a reality.”—Steve Dubb

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The SEC Experiments: Proposed Amendments to Include Certain Gig Workers in Compensatory Offerings under Rule 701 and Form S-8 | Bryan Cave Leighton Paisner

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The SEC recently voted to approve proposed amendments to Rule 701 and Form S-8 governing the offer or sale of securities to employees through compensation programs.  The proposed amendments provide for a temporary, five-year expansion of Rule 701 and Form S-8 to permit public and private companies to issue securities as compensation to certain “platform,” or “gig” workers, subject to various conditions.

Rule 701 provides an exemption from registration under the Securities Act of 1933, as amended, for the sale of securities by privately held companies to compensate employees, consultants, advisors and certain others under written compensatory benefit plans or written agreements.  Form S-8 is used by SEC reporting companies to register the sale of public company securities to employees, consultants and advisors.  Neither Rule 701 nor Form S-8 currently covers issuances to platform workers.

The proposed amendments to Rule 701 would allow a non-reporting company to offer and sell securities to “platform workers,” who are defined in the amended rules as workers who, pursuant to a written contract or agreement, provide services to an issuer or a third party through the issuer’s “internet-based marketplace platform or through another widespread, technology-based marketplace platform or system.”  The proposed amendments to Form S-8 would permit a reporting issuer to include that same category of workers in compensatory offerings registered on Form S-8.  The proposed amendments also include conditions that are designed to limit the possibility that the amended rules could result in offers and sales of securities for capital-raising, rather than compensatory, purposes.

As proposed, the amendments would apply only to platform workers who provide services through a company’s marketplace platform.  The SEC has indicated, however, that if the amendments are adopted and depending on the results of the initial expanded use of Rule 701 and Form S-8, the SEC could in the future further expand Rule 701 and Form S-8 to cover platform workers engaged in the selling of goods or other non-service providing activities through a company’s marketplace platform.

The proposed amendments are in addition to the proposed amendments to Rule 701 and Form S-8 that, at the same time, were approved by the SEC and that are designed to modernize the framework for compensatory securities offerings in light of the significant evolution in compensatory offerings and composition of the workforce.  Those separate proposed amendments are addressed in our Client Alert located here.

The public comment period for the proposed rule amendments will remain open for 60 days following publication of the release in the Federal Register.

Additional information regarding the proposed amendments is provided below:

Rule 701.  The proposed amendments to Rule 701 would enable non-reporting companies, during the five-year trial period, to compensate platform workers who provide bona fide services by means of a company’s internet- or technology-based platform or system, provided the following conditions are met:

  • During any 12-month period, no more than 15% of the value of the compensation received by a platform worker from the company may be in the form of equity compensation, with value determined at the time the securities are granted;
  • During any 36-month period, no more than $75,000 of such compensation may consist of securities issued pursuant to Rule 701 or Form S-8, with value determined at the time the securities are granted;
  • The issuer operates and controls the platform, as demonstrated by its ability to (i) provide access to the platform, (ii) establish the principal terms of service for using the platform and terms and conditions by which the platform worker receives payment for services provided through the platform and (iii) accept and remove platform workers;
  • The issuance of securities to platform workers is pursuant to a compensatory arrangement evidenced by a written plan or agreement and is not for services in connection with a capital-raising transaction or services that directly or indirectly promote or maintain a market for the company’s securities;
  • The amount and terms of any securities issued to a platform worker may not be subject to individual bargaining or the worker’s ability to elect between the payment of compensation in securities or cash; and
  • The company must take reasonable steps (e.g., special legends on securities and/ or appropriate instructions to the transfer agent) to prohibit the transfer of the securities issued to a platform worker under the Rule 701 exemption, other than a transfer to the company or by operation of law.

Form S-8.  The proposed amendments would expand Form S-8 to cover issuances to platform workers during the trial period, subject to the same conditions (other than the restrictions on transferability) that apply to issuances under Rule 701 as discussed above.

Trial Period.  The SEC is proposing the amendments on a temporary basis to provide the SEC with an opportunity to assess whether (1) issuances are being made for legitimate compensatory purposes and not for capital-raising purposes, (2) the issuances have the expected benefits for the platform workers who receive equity compensation, as well as the issuers that grant such compensation and their investors, and (3) there are any unintended consequences resulting from the issuances.

Periodic Reporting to the SEC.  The proposed amendments would require that a company issuing securities to platform workers under amended Rule 701 or on Form S-8 furnish certain information to the SEC at six-month intervals.  The required information is set out in the proposed amendments and would include, by way of example only, (i) the percentage of overall outstanding securities that the amount issued cumulatively under the temporary rules during the six-month period represents and (ii) the type and terms of those securities and whether they are the same as the type and terms of the issuer’s other compensatory transactions during the period.

For additional information, please refer to the amendments as proposed by the SEC.

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GIG Group Chairman, Chidi Ajaere on policies and how young tech entrepreneurs can cause changes

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Innovation does not always follow clear patterns; sometimes it’s as simple as finding the problem and providing the solution. Other times, it involves leveraging a policy loophole or going through several regulatory requirements.

In 2017, Nigerian mobility company, Metro African Xpress (MAX), leveraged such a loophole – the fact that bikes with engine capacities of 200ccs and above were allowed to ride on Lagos highways – and launched the first motorcycle-hailing service in the country.

Gokada and ORide shortly followed, but the thriving industry came to a grinding halt when the government decided that motorcycles were not part of their plans for a megacity.

Nigeria’s Securities and Exchange Commission (SEC) also came up with new crowdfunding regulations that baffled several players in the sector. There was also one small issue with NIPOST for logistics companies nationwide.

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At the 26th edition of the National Economic Summit (NES), Chidi Ajaere, Chairman of GIG Group, the parent company of mobility heavyweights like GIG Mobility and GIG Logistics, argued that policy somersaults are counterproductive to business and local investment.

Chidi Ajaere, Chairman of the GIG Group, at Techpoint Inspired 2018.

He referenced the government’s recent plan to reduce import duties on vehicles from 35% to 5% as one of such policy somersaults that could have untold consequences for local vehicle manufacturers in the country.

“Businesses can only be as great as the government allows them to be,” he said.

The NES is a private sector-led think-tank and policy advocacy group first convened by the Nigerian Economic Summit Group (NESG) in 1996. Since then it has become an impactful solid convergence point for economic stakeholders and policymakers in the country.

Irregularities across different regions

Chidi Ajaere also affirmed that transport companies are made to pay different exorbitant fees in most states which they’re in operation. All these while navigating bad roads.

“Sometimes, the cost of repairing damages to vehicles from bad roads could be more than the money realised from those trips,” he later told Techpoint Africa in a follow-up interview.

Besides policy somersaults, each state and local government in Nigeria has peculiar regulations that could either make or mar businesses. A scenario telecom companies (Telcos) and Internet Service Providers (ISPs) are familiar with in their struggles with right-of-way charges and vandalism.

Governor of Ekiti State, Kayode Fayemi and another panellist at Ajaere’s session were quick to point out this scenario, as well as scarce engagement at the federal level, and how it has affected businesses. He, however, insisted that the Nigerian Governors Forum has been working hard at making such engagements possible.

Recall that the National Economic Council, which consists of the 36 state governors, the Governor of the Central Bank of Nigeria and other co-opted government officials, resolved to slash right-of-way fees for telecom companies.

Ekiti State then set the ball rolling and, following this, we can confirm that seven states have either slashed or zero-rated right of way fees. However, several other states are still to implement the NEC’s resolution.

Lagos, in particular, decided to tow a different route by embarking on a dig-once unified fibre project which it promised would eliminate the need for telcos and ISPs to pay right-of-way fees and enable smaller players easier entry into the sector.

A clarion call for the youth

Despite all the policy engagement in various industries, a clear thought gap persists between the innovators in Nigeria’s startup ecosystem and policymakers. While this has driven a lot of innovation, it has also resulted in casualties as listed above.

Painfully enough, actual casualties were recorded during the #EndSARS protest.

At Techpoint Build 2020, Google Policy Lead, Titi Akinsanmi argued that better outcomes could be realised from government policies if those in power are proactively engaged.

Kayode Adegbola, Lead Partner at Golborne Road Advisory echoed the same sentiment right after the Okada ban.

Interestingly, evidence of such proactive engagement could be noticed when Ekiti State partnered with MAX.ng to digitise its informal transport sector.

Representing both the business world and Nigeria’s young population, Chidi Ajaere pushed this sentiment even further at the NES Summit. He believes that more young people should be part of the conversations on policies that affect them and not just watching from a distance.

“Some of the people in power have never run or managed businesses of up to 100 people before, they have never faced the kind of crisis we’ve faced in business. So when they’re faced with a crisis, they don’t even know what to do. They just got into power because they’re loyal to one or two higher-ups.

“But we have youth building enterprises and capacity and they need to be involved in our narrative,” he argues.

“One thing I realised when I had a meeting with Obaseki (Governor of Edo State), Waziri Tambuwal (Governor of Sokoto State) and Fayemi after the conference, was that these guys need to see more youth building capacity so that they can respect them and bring them into relevant conversations,” he adds.

At the heat of the #EndSARS protest, several youth led organisations helped facilitate a lot of activities to widespread acclaim.

As Iyin Aboyeji, Founder of Future Africa puts it, the government and established institutions have to forgo the cliche of “he’s just a small boy” and begin to engage with young tech entrepreneurs on more solid grounds of what they bring to the table.

According to Ajaere, this will not just greatly reduce a lot of the policy somersaults that end up adversely affecting the good work being done by the youth, but also spur an innovative approach to policymaking in Nigeria.

After the conference, Governor Fayemi, who is also the chairman of the Nigerian Governors Forum, made a commitment to get all governors to harmonise road transport taxes and engage the government on the recent reduction of import duties on vehicles.

Considering the events of the past few months, Nigerian tech entrepreneurs might probably have to move beyond engagement to become an active part of the decision-making process in Nigeria.


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