WC Stakeholders Assess the Impact of AB5

Liz Carey

Sacramento, CA (WorkersCompensation.com) – The California Legislature’s final approval of Assembly Bill 5 could be what many believe is the beginning of change for the gig economy.

The bill, proposed by Assemblywoman Lorena Gonzalez, would reclassify gig workers, like drivers for ride-sharing companies Lyft and Uber, as well as those working for Door Dash, GrubHub and other sharing economy companies, as employees. As reported previously in WorkersCompensation.com, gig workers, as independent contractors, are not covered by employment benefits like workers’ compensation, unemployment insurance and wage and hour laws.
Under the bill, employee classification would be determined by a simpler test of whether companies control the activities of a worker; whether their work is central to the company’s business, and whether the workers do the same work for other companies.

The state’s Senate passed the bill 29 to 11,  followed by the State Assembly’s approval of the amended bill. It was then signed by Gov. Gavin Newsom and is set to go into effect on January 1, 2020.

Uber’s Pushback
Despite the bill’s passage, Uber, for one won’t be rushing to reclassify its workers anytime soon after.

The bill “does not automatically reclassify any drivers from independent contractors to employees” said Tony West, Uber’s chief legal officer. In a call with reporters West explained the company’s reasoning. “Several previous rulings have found that drivers’ work is outside the usual course of Uber’s business, which is serving as a technology platform for several different types of digital marketplaces.” West also indicated litigation was likely.

Additional Reactions

Labor leaders called the bill’s passage a step in protecting workers from corporations looking to circumvent labor laws.

“AB5 is only the beginning,” Gig Workers Rising member and driver Edan Alva said in a statement. “I talk daily to other drivers who want a change but they are scared. They don’t want to lose their only source of income. But just because someone really needs to work does not mean that their rights as a worker should be stepped all over.”

But tech companies, who have been vocal about their opposition to the bill, decried the bill’s passage as a short-sighted effort.

“Today, our state’s political leadership missed an important opportunity to support the overwhelming majority of rideshare drivers who want a thoughtful solution that balances flexibility with an earnings standard and benefits,” Lyft spokesperson Adrian Durbin said in a statement. “The fact that there were more than 50 industries carved out of AB5 is very telling. We are fully prepared to take this issue to the voters of California to preserve the freedom and access drivers and riders want and need.”

Uber, Lyft and DoorDash warned legislators  that they would be willing to spend millions, at least $90 million to be exact, in support of a ballot initiative to overturn the bill.Their proposal to the voters would be to keep the independent contractor status while giving the drivers guarantees of some benefits and minimum earnings, the companies said.

“While we continue to advocate for this progressive framework, circumstances are forcing us to plan for legislative inaction by laying the groundwork for this initiative,” Uber said in a statement.

A petition the company released in late August says it’s working to protect ride-sharing and drivers’ ability to work independently.

Micah Rowland, COO of Fountain, a hiring, recruiting platform for gig/hourly workers), said the ruling’s negative aspects outweigh the benefits to gig workers.
“The negatives facing the economy, the companies, the drivers and the customers would far outweigh any gains for individual drivers (fewer jobs, higher prices, less successful companies) should California legislators codify this ruling into law,” Rowland said in an email interview with WorkersCompensation.com. “Though this hasn’t happened yet, the state assembly is already proposing laws to implement the Supreme Court’s guidance. If this does ultimately happen, the California economy is large enough that other states would likely follow suit quickly after the legislature takes action.”

For employers, the bill’s passage means a review of their contract workers immediately, said Michael Droke, a labor and employment partner at Dorsey and Whitney in California.

“This new law expands these protections for unemployment claims, and also imposes a stricter standard for other laws (the so-called “economic realities” test for workers who are fully employed by one entity for practical purposes), Droke said in an email statement to WorkersCompensation.com. “The new law exempts several occupations including licensed insurance agents, certain licensed health care professionals, registered securities broker-dealers or investment advisers, direct sales salespersons, real estate licensees, commercial fishermen, licensed barbers or cosmetologists, and others performing work under a contract for professional services, with another business entity, or pursuant to a subcontract in the construction industry. The new law would apply retroactively to the maximum extent permitted by law. It reaffirms the potential for criminal penalties for those knowingly violating the statute.”

And while the law only applies to contractors in California, Droke said, it’s possible that this could be a portent of things to come in other states. Droke said companies should look at all of their contract workers to assess their status immediately.

Meanwhile, Gov. Newsome may try to work a deal for workers in ridesharing and meal delivery jobs. According to the Associated Press, the governor hopes to bring representatives for the companies to the table with labor advocates to negotiate a separate set of rules for these workers.

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