California Bill to Disrupt Gig Economy

In California, gig economy employers like Uber and Lyft might become more accountable to their workers. In a sweeping effort to protect workers from being misclassified as independent contractors, the state Assembly passed “Gig Bill” AB5 on May 29 by a 58-15 vote. The bill would overhaul the state’s employment landscape by creating clearer guidelines that prevent employers large and small from skirting labor laws that provide workers with a minimum wage, overtime, workers’ compensation, disability, and other benefits. The bill is now headed to the pro-worker, Democratically led state Senate.

The bill follows a landmark decision by the California Supreme Court that ruled in favor of drivers from Dynamex Operations Inc., a courier and delivery company, in April. The drivers argued that they should be reclassified as employees instead of independent contractors since they are required to wear company uniform and display its logo while providing their own vehicles and shouldering all work-related costs.

Bill AB5 codifies this decision in law, requiring workers to be classified as employees and not independent contractors unless they pass the “ABC test”. The test ensures that: (A) the worker is free from the control and direction of the employer; (B) that the worker performs work that is outside the employer’s core business; and (C) that the worker engages in an “independently established trade, occupation, or business.”

The bill potentially affects hundreds of thousands of workers in the state who would otherwise be employees under the new test. AB5 especially disrupts large tech companies like Uber and Lyft, whose multimillion-dollar business model depends on the flexible, unemployed labor of its drivers. From enforcing strict rules over their car conditions to choosing which passengers and routes they take, Uber and Lyft, some of their drivers argue, have been intentionally misclassifying them as independent contractors since these companies hold substantial control over their work.

Opponents of the bill fear that independent contractors would lose much of the flexibility and control that made contract work lucrative to some people to begin with. Many workers, for instance, prefer being able to choose when they work and for whom. These perks, however, are not necessarily exclusive for independent contractors: Employers are also able to provide these benefits to their employees on top of a minimum wage and workers’ comp.

The bill ultimately aims to distinguish between workers who are truly independent and can negotiate work contracts, such as contract workers like doctors, lawyers, and real estate agents, and exploited gig workers, who receive unsteady paychecks without benefits. Further exemptions will be added before the bill reaches the state Senate to ensure that more industries and professions can be classified as independent contract work.

According to the bill’s sponsor, Assemblymember Lorena Gonzalez, gig work and other work that contributes to today’s stark income inequality will no longer make the cut. ”Individuals are not able to make it on three side hustles,” she said. “That shouldn’t be the norm. That shouldn’t be accepted.”