Sacramento, CA (WorkersCompensation.com) – A new law on the books in Cal., may not be making the workers it was intended to protect too happy.
AB 5, a law designed to protect contract workers from exploitation by companies in the sharing economy like Uber, Lyft and GrubHub, was signed by Gov. Gavin Newsom last month. The law, which takes effect in January, requires that California employers apply a three-part test to workers in order to determine whether or not they are employees or independent contractors.
At companies like Uber and Lyft, the business model relies on paying workers as independent contractors in order to avoid having to pay for benefits like health insurance, workers’ compensation or unemployment insurance. The new legislation would require that workers for gig companies be a) free of the company’s control, b) do work that is “outside the usual course of the hiring entity’s business,” and c) be established in a trade similar to the work being performed.
Both Uber and Lyft had said before the legislation was passed they would spend millions to fight the law. Representatives from Uber and Lyft did not immediately respond to requests for comment by press time.
Adrian Durbin, spokesman for Lyft, said in an interview with WorkersCompensation.com that the law would negatively impact drivers, limiting their working hours and potentially their earning opportunities. Additionally, because the law would force the company to change its business model, customers would likely see higher costs, and some might potentially lose service altogether.
“We are working on a solution that provides drivers with strong protections that include an earnings guarantee, a system of worker-directed portable benefits, and first-of-its-kind industry-wide sectoral bargaining, without jeopardizing the flexibility drivers tell us they value so much,” Durbin said. “We remain focused on reaching a deal, and are confident about bringing this issue to the voters if necessary.”
The legislation exempted some workers – doctors, lawyers and insurance brokers. Others who frequently do contract work – like truck drivers, healthcare workers and musicians – were not exempted.
Brad Shafer, a labor lawyer in California, told the Los Angeles Times the law could have far reaching impact.
“A problem with AB 5 is some people got exemptions because they had political juice and other people didn’t. This is a legal standard that forces people who want to be independent contractors to be classified as employees…,” Shafer said. “Take any performer who comes on stage at Staples Center. That entertainer would arguably be an employee of Staples Center. The performer is providing entertainment, and that is the business of Staples Center.”
Jonathan Solish, an attorney at Bryan Cave Leighton Paiser in Los Angeles, said the new law opens up other potential liability for employers.
Because the law makes employees out of those otherwise considered contractors, those new “employees” would be subject to wage laws that could negatively impact employers.
“Any worker in the same business as a putative employer was now to be considered its ‘employee’ on wage order claims. The ABC test generates innumerable false positives. It’s like saying that anything with two ears is a donkey. All donkeys will be accurately identified by the test, but they will be joined by a veritable Noah’s Ark of creatures that are most certainly not donkeys,” Solish said on his company’s blog. “This nuance apparently escaped the legislature when it indiscriminately embraced the Dynamex ABC standard ‘for purposes of the provisions of the Labor Code,’ exposing businesses operating in California to a devastating range of Labor Code remedies that include the obligation to reimburse “employees” for their expenses and losses.”
Solish said the law would not allow the new “employees” the ability to go back to employers and sue for expenses they paid out in order to work for the employer.
“California businesses can expect to be defendants in class actions brought on behalf of individuals they never hired, supervised, compensated or scheduled who will seek from them the reimbursement of many years of claimed expenses and losses,” he said. “The misclassification of countless California businesses as employers by the California legislature will expose many entirely blameless companies to devastating damages claims under the California Labor Code that go far beyond the damages that would have been warranted by the mere codification of the Dynamex decision.”