Groundbreaking new California legislation impeding many companies from claiming workers are independent contractors takes effect in 2020. AB5 passed the Senate and Assembly last week, and Gov. Gavin Newsom has indicated he will sign it. Here are answers to questions about the gig work bill.
Q: At the stroke of midnight on Dec. 31, will every Uber and Lyft driver in the state, plus all the other affected workers, turn into employees, like Cinderella’s coachmen transforming back into mice?
A: Nope. As much as some might want a gig economy magic wand, it’s a lot more complex than that.
Q: So what does AB5 actually do?
A: AB5 codifies, clarifies and grants exemptions to a 2018 California Supreme Court decision called Dynamex. Both AB5 and Dynamex make it harder for companies to label workers as independent contractors. They use an “ABC” test that says workers are employees if (A) they perform tasks under a company’s control, (B) their work is integral to the company’s business and (C) they do not have independent enterprises in that trade. It takes effect Jan. 1.
Q: How is being an employee different from being a contractor?
A: Employees are entitled to benefits such as minimum wage, workers’ compensation, unemployment insurance, expense reimbursement, paid sick leave and paid family leave. Employers pay half of employees’ Social Security tax.
Q: Why don’t companies want to reclassify workers as employees?
A: It’s a lot more expensive — all those benefits can add 30% to labor costs. Plus, employers prefer the flexibility they have with freelancers.
Q: What are ride-hailing companies doing in response?
A: Uber and Lyft — and probably other gig companies — maintain that their workers still qualify as independent contractors under AB5’s stricter test. They’ll make that argument in court and through arbitration and will not reclassify drivers unless a judge forces them to.
Q: Who is exempt from AB5? Why?
A: Dozens of professions won exemptions to AB5, usually on the grounds that they set or negotiate their own rates, communicate directly with customers, and make at least twice minimum wage. They include doctors, psychologists, dentists, podiatrists, insurance agents, stock brokers, lawyers, accountants, engineers, veterinarians, direct sellers, real estate agents, hairstylists and barbers, aestheticians, commercial fishermen, marketing professionals, travel agents, graphic designers, grant writers, fine artists, enrolled agents, payment processing agents, repossession agents and human resources administrators. There are exceptions for photographers, photojournalists, freelance writers, editors or newspaper cartoonists who make 35 or fewer submissions a year, as well as for some types of business-to-business activities.
Q: What do workers who haven’t been exempted want?
A: Some ride-hail drivers and other gig workers want to be employees; some don’t. Translators, some medical professionals and truck owner-operators seem uniform in their desire to remain freelancers. Among other professions, there’s no clear consensus.
Q: So which workers will end up being reclassified as employees?
A: Smaller companies that lack the big bucks for extended court battles may decide to reclassify their workers as a preemptive move. Lawyers say they are getting daily inquiries from clients across a range of industries about how to prepare for AB5, and some companies are already switching over.
Q: What does organized labor have to do with this?
A: Unions want to organize Uber and Lyft drivers and others. Expect to see a bill introduced in 2020 allowing gig workers to unionize.
Q: How will AB5 be enforced?
A: Various California agencies, including the Labor Commission, the Employment Development Department and the Franchise Tax Board, have authority over workers misclassification. But their efforts mainly happen via individual cases. For larger changes, expect to see a rash of lawsuits, both from the private bar and from public attorneys. AB5 empowers the attorney general, city attorneys in large cities, and local prosecutors to sue companies over violations. The city attorneys of San Francisco and Los Angeles both appear ready to act on this. It would take a judge’s order to force Uber and Lyft to reclassify — and it’s likely they’d fight their cases for years.
Q: Does AB5 have ramifications beyond California?
A: Yes. California is a trendsetter; other states, including New York, are eyeing similar bills. At the national level, Sen. Bernie Sanders, independent-Vt., has introduced the Workplace Democracy Plan, which takes a similar approach to AB5. He and many other Democratic presidential candidates, including Elizabeth Warren, Kamala Harris, Pete Buttigieg and Julián Castro, support AB5.
Q: Why do Uber and Lyft care so much about this?
A: Both companies are newly public and lose money hand over fist. Treating their California drivers as employees could cost Uber $500 million a year and Lyft $290 million a year, according to a Barclays analysis. The companies say their business models rely on flexibility and that it will be harder to ensure that rides are always available with an employment model.
Q: If ride-hail drivers become employees, how would their working conditions change?
A: Uber and Lyft say drivers’ current ability to log in and log out at will would vanish. They say they would have to impose set schedules, bar drivers from working for competitors, and limit the number of drivers so they’re not paying for idle time. AB5 proponents say these are scare tactics. “Nothing in this act is intended to diminish the flexibility of employees to work part-time or intermittent schedules or to work for multiple employers,” says language added to AB5 this month.
Q: Will Lyft and Uber rides cost more if drivers are employees?
A: That’s up to the companies — but they already lose money and probably would need to mitigate the extra costs of employment. So it’s possible that they’d increase prices.
Q: What other impacts might consumers see?
A: Generally, the costs of goods and services might go up as companies seek to recoup added labor costs. Health care providers say they might not be able to staff remote clinics or hard-to-fill jobs if they are forced to hire medical specialists who prefer flexible work as employees.
Q: What is the alternative proposal from the ride-hail companies?
A: The companies want to create a new category of workers called network drivers who would be independent contractors but able to receive an earnings guarantee and some benefits, as well as having a unified voice to communicate with management. Uber has suggested an earnings floor of 1.27 times minimum wage (calculated as a weekly average), plus 30 cents a mile for expenses. Lyft has suggested $21 an hour including expenses. Both would apply only from the time a driver accepted a ride request until the ride concluded — not to the “deadhead” waiting time.
Q: How are Uber and Lyft trying to make their proposal a reality?
A: The companies still want to negotiate with labor leaders and lawmakers in hopes of a legislative solution. Gov. Gavin Newsom says he encourages the talks to continue. But if that doesn’t happen, they will take their cause directly to the voters.
Q: What’s up with the ballot proposition?
A: Uber, Lyft and DoorDash have contributed $30 million apiece to a fund to work toward placing a measure on the November 2020 ballot. While the text won’t be written until next month, it’s likely to seek to create a network driver category of independent contractors with a wage floor and some benefits, but not include a driver-voice component.
Q: What happened at the last minute with newspapers?
A: Newspapers say that reclassifying delivery carriers would hurt them financially. They won a one-year reprieve on this via AB170, a bill that passed both houses Friday evening at the last moment of the current legislative session. They hope the breathing room will help them devise alternative rules.
Q: Is AB5 set in stone, or could there be more legislative changes?
A: There could be more changes when the Legislature reconvenes in 2020. For one thing, industries such as truck owner-operators continue to lobby fiercely for exemptions. For another, Uber, Lyft and other gig companies still hope to win passage of their alternative. And labor will be seeking the right to unionize for gig workers.
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