CA Bill Restricting 'Gig Economy' Employers From Classifying Workers as Contractors Advances

UPDATED - 9/11/19: The California Senate voted 29-11 along party-lines on Tuesday to advance the bill reforming labor laws for "gig economy" companies to restrict them from classifying workers as contractors rather than employees. The bill was amended by the Senate, so it now heads back to the Assembly which passed its version of the bill on a party-line 59-15 vote this spring.

Countable's original story appears below.

The California legislature may soon approve a controversial bill that would restrict companies from classifying workers in “gig economy” jobs as independent contractors to avoid paying the benefits they’d be owed as employees. If it’s enacted, several companies that rely on independent contractors — namely Uber, Lyft, and DoorDash — have pledged $90 million for a ballot measure that would repeal the bill. Here’s what you need to know about California’s independent contractor bill:

What would the bill do?

Known as AB 5, the bill would codify and clarify the so-called “ABC test” to determine whether a worker is being misclassified as an independent contractor to avoid paying for obligations that companies cover for employees, such as the employer’s portion of payroll, Social Security, and unemployment insurance taxes.

The ABC test was established by the California Supreme Court’s unanimous ruling in the Dynamex case last year, and would require that workers be considered employees rather than independent contractors unless the employer proves that all three of the following conditions are met:

• The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
• The person performs work that is outside the usual course of the hiring entity’s business.
• The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

AB 5 would include exemptions for insurance agents; doctors, dentists, psychologists, and other state-licensed specialists; state-licensed lawyers, accountants, architects, engineers, and private investigators; investment advisors; commercial fishermen; direct sales workers; and freelance professional workers.

If enacted, AB 5 would take effect on January 1, 2020.

Argument in Favor:

Corporations are exploiting workers by classifying workers as independent contractors to avoid paying them a minimum wage, payroll taxes, and providing other workplace protections. This bill would ensure these workers are fairly compensated.

Argument Against:

Workers choose to take jobs as independent contractors rather than employees because of the flexibility to work whenever, wherever, and for whomever they choose. This bill would eliminate independent contractors’ freedom and reduce their opportunities.

Impact: Independent contractors; businesses employing independent contractors; and the state of California.

Cost: A cost estimate is unavailable.

In-Depth: Assemblywoman Lorena Gonzalez (D-San Diego) introduced this bill to protect workers from employment misclassification and offered the following statement after her bill passed a House committee:

“Today the California Legislature took the first step in making it clear: your business cannot operate in our state if you are using misclassification to game the system. As lawmakers, we will not in good conscience allow free-riding businesses to continue to pass their own business costs onto taxpayers and workers. It’s our working men and women, not Wall Street and their get-rich-quick IPOs.”

Uber, Lyft, and DoorDash are among the most prominent "gig economy" companies to campaign against AB 5, with each pledging $30 million toward a ballot measure to reverse the bill if it’s enacted. In a statement, Uber said its drivers value the freedom to work “whenever, wherever, and for whom they choose” and “we believe that independent, on-demand workers should not have to sacrifice security to enjoy that flexibility.” It added that:

“We would likely have to exert more control over drivers, telling them where to work, how to work, and who they can work for. Uber would likely hire far fewer drivers than we currently support, and we’d likely require a minimum number of hours per week. Scheduling and rigid shifts would become the norm, and Uber would likely prevent drivers from working for other rideshare companies.”

The California Dept. of Industrial Relations estimates that the misclassification of workers results in the loss of about $7 billion in payroll tax revenue per year.

The bill has the support of 13 sponsors in the legislature, all of whom are Democrats. 

What’s Next:

The California Senate is expected to debate and pass the bill this week. If it’s amended, the bill will need to return to the Assembly for another vote, where it passed on a mostly party-line vote of 59-15 in May. Whether the Senate or the Assembly casts the final vote on the bill, Gov. Gavin Newsom (D) said he will sign it into law.

Media:

• California Assembly Democrats Press Release 
• California Legislature
• CalMatters
• ABC 7
• The Guardian
• Uber via Medium (Opposed)

Summary by Eric Revell

(Photo Credit: iStock.com / miodrag ignjatovic)