Supplement to Article “California Passes Law to Reclassify Independent Contractors to Employees” in 10.24.19 Newsletter
“A gig economy is a free market system in which temporary positions are common and organizations contract with independent workers for short-term engagements. The term “gig” is a slang word meaning “a job for a specified period of time” and is typically used in referring to musicians. Examples of gig employees in the workforce could include freelancers, independent contractors, project-based workers and temporary or part-time hires.”
Historical Background of “Gig” Companies
The term “gig” (taken from the music industry in which bands getting a job to play at an event is referred to as getting a “gig”) economy became popular in response to the economic downturn in 2009. “Gig” companies used a business model which hired “independent contractors”, rather than keep full-time “employees”. This was used to save labor costs and because they believed its employees to be mostly part-time workers looking for temporary jobs.
Initially, many underemployed or unemployed workers did use these gigs as “side hustles” to supplement their other jobs. Over time, these gig companies prospered and “side gigs” became full time jobs for many drivers. And here is where the issues began.
“Side Hustles Become Full Time Work: Since the “gigs” became full time jobs, many drivers felt that they should have a higher cut of their fares and have benefits normally associated with “employees” including health and disability benefits, and the right to unionize. They have staged protests calling for better wages and work conditions. With governmental and public sentiments going from adulation to anger with companies like Uber, there has been a groundswell to regulate these companies.
Government and Public Sentiment Became Hostile to Gig Companies Around 2015: Up until 2015, “gig” companies like Uber, Lyft, DoorDash enjoyed an unprecedented honeymoon with consumers. And why not, they seemed to help make our lives easier. Who hasn’t appreciated a cheaper ride home on Uber instead of taxicabs after a late night of a little too much wine? With the press of an app, an Uber driver would show up at our doorsteps much faster than a traditional taxicab. Hailed as game changing innovators, these companies operated without regulation or accountability to the community at large.
Then came 2015…this was the year in which government and the public turned on tech companies. There were a number of reasons for this about-face such as boorish behavior of its leaders like Uber’s Travis Kalanick, the economic disparity of tech workers with non-techies, etc. From the early protests of tech shuttles in 2013 to more recent Uber drivers protests, many groups, especially political leaders have pushed to re-balance the power/wealth of tech companies with the everyday joe. California political leaders have especially taken the lead on.
California Passes Law to Re-classify “Independent Contractors” to “Employees” to Help Workers Get Better Wages and Benefits:
ABC Test to Determine Independent Contractor Status: On October 1, 2019, California Legislators passed Assembly Bill 5 (AB5) which subsequently ratified by Governor Gavin Newsom. Codifying a recent CA Supreme Court ruling called “Dynamax”, AB5 imposes a simple “ABC” test in determining whether someone is an independent contractor: (A) Does that worker perform tasks under the company’s control?; (B) Is their work integral to the company’s business?; and (C) Does the worker have an independent enterprise in that trade?
This new law contradicts the previously accepted definition of an “independent contractor” which Merriam-Webster dictionary defines as, “a person hired to do work who controls how the work is done”.
Gig Companies Resistance: Not surprisingly, Uber and other gig companies are resisting AB5 through a number of ways: (a) legal action including Uber’s vow to fight lawsuits brought by drivers; (b) Lyft’s restructuring of the way their drivers are set up including requiring set shifts, restrictions on the area in which they drive; and (c) requiring that drivers drive with only one ride sharing service. In addition, Uber, Lyft, and DoorDash will be funding $30 million each for a 2020 ballot measure to overturn AB5.
Many Non-Gig Businesses Including Mom & Pop Will Be Affected: Although a number of exemptions have been granted to businesses like doctors, dentists, real estate agents, hair stylist, there are a number of non-exempt businesses who will greatly be impacted by AB 5, including small “mom and pop” operations.
Not All Gig Workers Support AB5: Not all gig workers support AB5. Many prefer being independent contractors since it allows them the flexibility and autonomy in how they operate. As independent contractors, they can set their own schedule, “driving” area (many drivers drive long distances to drive-in high-density areas like SF or NY), and the amount hours per day that they’d like to drive.
AB5 Does not Automatically Reclassify Workers but Requires Filing Suit to be Reclassified as an “Employee” : Although AB 5 is effective on January 1, 2020, it doesn’t mean that gig workers like Uber drivers will automatically become employees. Rather, the independent contractor, or a government attorney (including State and City attorneys) must file a lawsuit in court for reclassification.