California is as resilient as ever in the face of the unknown. Aside from wildfires, a global pandemic, and the resulting mass exodus from urban centers, a major concern for businesses that rely on gig workers has been California’s new AB-5 ruling.
To start, we’ll need to fully clarify what exactly AB-5 is, along with its resulting implications. California Assembly Bill 5 (AB-5) is a California law that went into effect January 1, 2020, that “…requires companies that hire independent contractors to reclassify them as employees, with a few exceptions,” according to Investopedia’s Rebecca Lake.
This law has been spotlighted as of late given three major gig-worker employers — Uber, Lyft, and DoorDash — have resisted enacting its mandates since its passing. The very same companies, however, have been reprimanded for their lack of compliance to AB-5, and “…on Aug. 10, 2020, California Superior Court Judge Ethan Schulman ordered the companies to reclassify their contract drivers as employees with the same protections and benefits as their other staffers,” Lake continues. This means that these companies would become responsible for providing the same benefits that traditional employees are entitled to, including workers’ compensation, unemployment insurance, family leave, and much more.
That’s not all there is to the story. On September 4, 2020, an additional law was passed that created exceptions for numerous types of professional gig workers, stating these individuals would be exempt from the mandates of the AB5 ruling, including (but not limited to): insurance agents, certain health care professionals, securities broker-dealers, investment advisers, certain types of salespeople, real estate agents and more.
That said, there are several red flags with this approach for the everyday gig-worker in California. This law is about to set a precedent that would extend employee classification to gig workers employed by companies like Uber, Lyft, DoorDash and more, which would be impossible to enforce in one single month. Plus, it would be very costly for said businesses and majorly disrupt not only their operations, but also the livelihoods of the tens of thousands of people who work for them. There will also almost certainly be more professions that crop up and need inclusion on the already running list of exemptions, triggering the need for added layers of legislation, and so on and so forth.
In response to these issues, gig worker-supported businesses shelled out almost $200 million to support a state ballot measure known as Prop 22, which California citizens voted to pass in November. Companies like Uber, Lyft and DoorDash will now be exempt from reclassifying gig workers as employees. Associated gig workers would maintain their independent contractor status, while wage, safety and benefit standards would be implemented. This will include items like health care compensation.
Prop 22 at a glance
Business operations impact:
Pros for consumers
Pros for major players, like Uber, Lyft and Doordash
What Prop 22 means for gig workers
It is clear that the introduction and intention of AB-5 is to fight for better compensation for workers, but where it falls short is in its attempt to forcibly weave outdated processes into a modern economic issue, without any actual beneficial fix.
Failure to pass Prop 22 would have completely removed the option for thousands of individuals who rely on those positions to earn extra income. Up to 76% of Uber drivers alone would have lost their jobs, leaving 158,000 Californians scrambling to find other ways to earn an income — which could prove exceptionally difficult in the current pandemic-driven economic climate of mass furloughs and unemployment spikes.
With Prop 22′s approval, workers maintain their independent contractor status, leaving the door open for these individuals who earn money from these services to continue to earn.
The NAACP, one of the largest proponents of Prop 22, offered a unique perspective. In their eyes, gig work like driving for Uber, Lyft or DoorDash “…provides an accessible, low barrier-to-entry way to earn income for those who often find traditional employment challenging — communities of color, seniors, disabled veterans and those formerly incarcerated.”
It’s also important for all of us to think about the impact that access to this type of gig work can make in the lives of immigrant workers. A recent article by Greg Ferenstein sheds light on the huge population of Brazilian drivers in San Francisco. “Many escaped South America’s terrible economy to learn English and earn a better living in the global market,” he writes. “It’s hard for them to pass interviews for employee work. While driving, they practice speaking with passengers with the hopes of one day returning and providing for their family with the kind of money that a bi-lingual speaker can make.” Moreover, not every gig worker wants to become a traditional employee. Many enjoy the freedom and flexibility that the gig work lifestyle provides.
Regardless, the consequences of Prop 22 will have long-lasting impacts on gig workers in California and set a precedent for the rest of the country.
The future of gig work in California and beyond
The gig worker ecosystem as it is in the U.S. is far from perfect, and the legislation and protections provided to this broad spectrum of workers is in need of a major overhaul. The truth is that some independent contractors need more protection than others. For instance, an Uber driver earning $20 an hour will need a much more robust safety blanket than a data scientist earning $350 an hour, and is exactly why different structures should apply.
A universal solution simply does not exist, and AB-5 is not the right way to get closer to a semblance of balance. “Ultimately, the greatest impact of Prop 22, passage or not, may actually be felt outside of California,” wrote Joel Feldman of Slate Law Group. “As the legal challenges over AB-5 show, labor laws were not prepared for the gig economy and current regulations did not anticipate the use of independent contractors in such a way and at such a large scale.”
This is sure to be one of the most significant cases in a long string of such laws in states throughout the U.S. California’s decision will likely determine the outcome of our country decides to navigate these issues, now and in the future.
Shahar Erez is CEO and Co-Founder of Stoke Talent.