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Opinion A California bill has nationwide ramifications for the gig economy

Uber and Lyft stickers on a car in Redondo Beach, Calif., on March 25. (Lucy Nicholson/Reuters)

Critics, and some cheerleaders, too, are greeting a California bill as an Uber-killer. They may be right. But the legislation known as AB5 did not start with the ride-hailing industry, and its role in this country’s conversation about labor will not end there, either.

AB5, which the Golden State legislature passed last week, codifies a state case revolving around truck drivers who argued their companies intentionally misclassified them as contractors to save money, even as they hauled goods for tens of hours a week. The rule is essentially this: Workers are company employees if the company controls how they do their work, or if that work is core to the company’s business.

This spells trouble for gig-economy start-ups that run on outsourcing. Ride-hailing juggernauts in particular, already in precarious financial shape, are crying out that it represents an existential threat. Uber has said the legislation doesn’t apply to it because driving is outside the usual course of its business of . . . coordinating driving trips. It has also said it will sponsor a referendum for voters to overturn the law. And it has said that if it loses both the definitional argument and the referendum, the app as we know it faces certain doom.

Well, Uber and Lyft certainly have brought convenience to many users. But if it turns out their model depends on unfair exploitation of labor, then the model does not deserve to survive. It’s important to understand this: The California bill is not asking ridesharing companies to give health insurance to every driver who picks up a ride or two between running errands. Employees will have to meet the 30-hour weekly threshold for full-time work to get the benefits mandated for full-time workers.

Still, the bill creates some confusing incentives. Will gig companies gravitate toward hiring mostly workers who can contribute well over 30 hours a week, to avoid responsibility for all those part-timers? Or will they do the opposite, limiting hours to keep more drivers part-time so they won’t have to provide so many full-time perks? Nothing in the bill forces companies to yank away flexible schedules, but they might do it anyway — at least for the less reliable laborers who value flexibility most.

Ride-hailing companies propose solving their problem with a compromise that retains drivers as contractors but entitles them to earn a minimum wage and band together to bargain, even as contractors. But that might not solve a problem that extends well beyond ride-hailing companies: Americans increasingly work for multiple employers in multiple capacities, and they are losing out on protections because of it.

Researchers and some lawmakers have been experimenting with alternative setups that would make injury insurance, paid leave and other benefits “portable” and prorated, with each firm contributing to a fund in proportion to an employee’s labor. Another route, most notably gaining currency in the health-care arena, would be to open up government-sponsored benefit plans to anyone who paid in. California’s bill will not be the last word, but it will be useful if it kick-starts a nationwide rethinking of labor rules that embrace both flexibility and fairness.

Read more:

Megan McArdle: Treating Uber and Lyft drivers in California as company employees is not going to work

Lorena Gonzalez: The gig economy has costs. We can no longer ignore them.

Megan McArdle: Uber and Lyft are everything we love about capitalism — and everything we hate

Robert J. Samuelson: Is the gig economy a myth?

Megan McArdle: Uber and Lyft are losing money. At some point, we’ll pay for it.