California Law Limiting Gig Economy to Take Effect January 1

The California State Assembly gave its final approval, in a 56-to-15 vote, for AB5, a bill that strikes a blow against the gig economy, forcing companies such as Lyft and Uber to treat contract workers as employees. The bill originally passed in the State Senate in a 29-to-11 vote and applies to all app-based companies. Governor Gavin Newsom, who endorsed the bill, is expected to sign it; the law will go into effect January 1. Uber has stated it will do “whatever it takes” to keep their drivers independent contractors.

The New York Times reports that companies that have to rely on employees will see their costs rise between 20 and 30 percent. In California, the new law is expected to impact “at least one million workers” and threatens the future of numerous app-based services dependent on “inexpensive, independent labor.”

“Today the so-called gig companies present themselves as the innovative future of tomorrow, a future where companies don’t pay Social Security or Medicare,” said state senator Maria Elena Durazo. “Let’s be clear: there is nothing innovative about underpaying someone for their labor.”

Gig Workers Rising organizer and ride-share driver Rebecca Stack-Martinez declared herself, “so proud of ride-share drivers who took time out of their lives to share their stories, stand up, speak to legislators and hope they take a moment to bask in a victory.” Meanwhile, at Uber, 435 workers in product and engineering teams were laid off.

Over the years the gig economy has boomed, California, New York, Alaska and Oregon “had found that ride-hailing drivers were employees under state laws for narrow purposes, like eligibility for unemployment insurance … [but] those findings could be overridden by state laws explicitly deeming the drivers as contractors.”

More recently, two federal proposals “since 2018 have sought to redefine the way workers are classified to allow more of them to unionize.” “Some form of benefits to some population of drivers seems inevitable,” said Deutsche Bank equity research analyst Lloyd Walmsley.

DoorDash, Lyft and Uber pledged $90 million to pass an initiative that would exempt them from the law. Uber “has also said it will litigate misclassification claims from drivers in arbitration and press lawmakers to consider a separate bill that could exempt them from AB5’s impact.”

TechCrunch reports that Uber chief legal officer Tony West said the company “will continue to advocate for a compromise agreement,” even as it lays “the groundwork for a statewide ballot initiative in 2020.” “This is not our first choice,” said West. “At the same time, we need to make sure we are exploring all options and all alternatives to put forward a framework that works for the 21st-century economy.”

AB5 originated with the ruling in Dynamex Operations West v. Superior Court of Los Angeles, in which “the court applied the ABC test and decided Dynamex wrongfully classified its workers as independent contractors.”

To classify a worker as an independent contractor, the company “must prove the worker is free from the control and direction of the hiring entity, performs work outside the scope of the entity’s business and is regularly engaged in an ‘independently established trade, occupation, or business of the same nature as the work performed’.”