A new law in California seeks to rewrite the rules of work and what it means to be an employee.
The law represents a cataclysmic shift for workers who depend on apps to get gigs, and it has inspired similar efforts in New York, New Jersey and Illinois. Heavyweight presidential candidates like Elizabeth Warren and Bernie Sanders have championed the measure.
But the bill’s passage and implementation, in the face of a strong industry resistance, has done little to quell debate. Instead, the opposition has ramped up, even as the California leaders pledged last week to budget at least $20 million to enforce the law.
Tech companies like Uber, Lyft, Postmates, DoorDash and Instacart have joined forces — and pocketbooks — to sponsor a $110 million ballot initiative that would formally exempt them from the law. Tech chief executives, business owners and labor advocates now trade angry op-eds seemingly every day. Truckers recently won an exemption from it in court. Newspaper publishers cry foul, saying the provision’s application on delivery drivers could drive them to ruin. And a small but vocal minority of workers — freelance writers — have been using their platforms to complain it will kill their livelihood.
AB5 represents one of the most significant attempts to address the ways that technology has upended the nature of work. The bill’s passage was a milestone in an increasingly loud discussion about reining in some of Silicon Valley’s most vaunted companies, and its outcome could affect the plight of hundreds of thousands of workers for years as it moves to other states. But there’s just one problem: No one knows whether it will work.
This is the story of how we got here.
A surprising court decision
The roots of the bill go back a few years, when California’s Supreme Court redefined the line between employment and contracting in a decision written for a case filed by a delivery driver.
Charles Lee had sued the courier and delivery company he drove for, Dynamex. In 2004, Dynamex made its drivers become independent contractors. Lee argued that he performed all the same tasks as an employee.
The Supreme Court agreed and set a strict new standard that made it harder for companies to classify workers as independent contractors — a tactic that has been used by companies to cut labor costs for years, advocates say.
The court established a new test, saying workers could be classified as independent contractor only if they were free from the control and direction of the company; engage in work outside the company’s main business, and already work independently from the company, doing the same kinds of thing as the company.
That set the wheels turning in California’s legislature.
“The courts had clearly had enough of these suits,” said Assemblywoman Lorena Gonzalez (D-San Diego), who wrote the bill, in an interview. “From that day on, we said we’d really like to work on this.”
Why the shift from contractor to employee is a big deal
Being an employee opens the door to protections and benefits that are not available to contractors, including minimum wage, overtime, sick and family leave, unemployment and disability insurance, and workers’ compensation. Contractors can’t formally organize with unions as employees can, either.
For companies, these benefits cost 20 to 30 percent more than what they would pay a contractor doing the same job. And for Uber and Lyft, it could be as high as $500 million and $290 million a year, respectively, according to a Barclays analysis.
California’s new law doesn’t apply only to tech companies. It affects employees like janitors, construction workers, medical technicians, coders, yoga teachers, adult film stars and strippers, and many other groups.
The bill’s unlikely success
The bill was quickly met with criticism from conservative and business groups, such as the California Chamber of Commerce, after it was introduced at the end of 2018.
Tech companies whose platforms rely on gig workers, like Uber, Lyft, Caviar, DoorDash, Handy and Instacart, joined to oppose the use of the ABC test on their workers, according to the San Francisco Chronicle.
But gig workers organized in informal groups like Rideshare Drivers United and Gig Workers Rising to support the gig-worker bill.
Nicole Moore, a part-time Lyft driver and organizer with Rideshare Drivers United, said the proposal tapped into long-simmering frustrations about declining and arbitrary pay, as well as a lack of a voice on the job.
“There are basic labor standards in this country,” Moore said. “It looks like AB5 gets us closer to that.”
After the bill passed the California assembly in June, Uber and Lyft launched a campaign to win over the state senate and Gov. Gavin Newsom. Uber chief executive Dara Khosrowshahi and Lyft executives Logan Green and John Zimmer wrote an op-ed together in the Chronicle, arguing that classifying their workforce as employees would cause drivers to lose the freedom and flexibility they currently enjoy.
But AB5 passed the state’s senate and was signed into law by Newsom in September. Labor advocates and many Democrats hailed the new law as a milestone.
“The fact that we were able to get this passed signifies that the legislature and the governor really see the conditions of workers on these platforms and the veneer is wearing off,” Veena Dubal, an associate professor of law at the University of California in San Francisco and gig-economy researcher. “People are seeing that these companies are just like any other companies.”
Pushback on all fronts
The law remains a source of controversy.
A coalition of tech companies have pledged a reported $110 million for a new measure on the November ballot to exempt app-based drivers. Lyft and Uber, which together have more than 500,000 drivers in California, say they believe the law does not apply to their drivers, while simultaneously pursuing other avenues to exempt themselves from its provisions.
“We believe the model that we’re trying to create is best for drivers,” Lyft spokesman CJ Macklin said in an email. “The ballot measure that we support will provide historic new benefits and protections, while still maintaining the flexibility and upward earning potential that is so important to our drivers.”
Uber and Postmates sued the state in December, calling the law “irrational and unconstitutional.”
Last week, a court ruled that truck drivers were exempt from the law after two drivers, along with a trucking industry group, filed a lawsuit saying the bill violated the commerce clause of the Constitution.
Some groups of contractors say they are concerned about losing work. Theater companies, opera houses and other arts-focused organizations have said they are worried the law will stretch already-thin budgets. Some interpreters, translators and linguists have brought similar criticisms to light.
Under the law, companies must classify writers as employees, if they write more than 35 articles a year, which many freelancers say is a small and arbitrary number. Vox Media opted to end its relationship with hundreds of writers and editors in California instead of reclassifying the workers. A group of writers has joined with a libertarian legal foundation to file a lawsuit against the law, as well.
Judges will probably be the ultimate deciders of which companies must convert their workers into employees.
Some companies are also looking into creative ways to circumvent the laws: The Washington Post reported that Uber put together a special team called Project Luigi that had been developing new app features to help it steer clear of the law in California.
Will it spread around the country?
AB5′s implementation is being watched closely around the country. Other states with Democratic legislatures like New Jersey, New York, and Illinois have similar bills in the works.
But the chaos in figuring out who’s in and out of the gig economy in California might give some legislators pause.
“States should hold off in the face of all these challenges that have emerged in California,” said Maria Figueroa, director of labor and policy research at the Worker Institute at Cornell University’s School of Industrial Labor Relations. “The ideal situation would be for other states to come up with legislation that would be narrow enough in terms of its parameters to cover platform workers …[but] would enable these states to avoid these challenges."
Others see the opposition in the terms of greed.
“We are in this place because we have these really big companies that will put tens of millions up for the right to deny basic protections for workers,” said Sharon Block, executive director of the Labor and Worklife Program at Harvard Law School.
The law has seemed to prompt some gig companies to make preemptive changes to their services. DoorDash recently began offering accident insurance for workers injured on the job.
But tech companies continue to say there are better ways to classify their workers.
“Proponents of AB5 came up with a 100-year-old solution to a modern problem,” Stacey Wells, a spokeswoman for the tech-funded Protect App-Based Drivers and Services. “People rely on this extra income to make ends meet — many of whom have jobs, the vast majority of whom work part time and want to do it only when they want. It doesn’t work for them to be employees.”
Gonzalez, for her part, dismisses much of the criticism as the clamor of self-interested tech companies sowing confusion about the law.
“There are some companies that will do anything to avoid abiding by CA law,” she said.
Whatever the outcome, the nation is watching to see how California’s grand experiment in the gig economy will play out.