Never has the distinction between employee and contractor been so vital as when the gig economy began booming this decade. By declaring millions of workers as contractors, startups, tech companies, and apps like Uber, Lyft, Door Dash, and Postmates saved millions on salary, benefits, and other protections that would be due to employees. And those companies have fought hard to keep that distinction away from the courts.
But the California legislature has stepped in and passed a law requiring gig economy workers to be reclassified as employees, altering the status of millions of workers and, perhaps, the way “disruptors” do business.
The ABCs of Contractors and Employees
California’s Assembly Bill 5 would codify a California Supreme Court decision from last year that applies what’s now known as the “ABC” test to determine whether a worker is an independent contractor or an employee. Under that test:
“…a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that the person is free from the control and direction of the hiring entity in connection with the performance of the work, the person performs work that is outside the usual course of the hiring entity’s business, and the person is customarily engaged in an independently established trade, occupation or business.”
The bill’s proponents believe this means millions of California workers — from janitors and housekeepers to Uber and Lyft drivers — will now have access to basic labor rights like minimum wage, overtime pay, workers’ compensation, and unemployment benefits. Additionally, those same workers will ostensibly be able to form and join labor unions.
Uber the Law
Uber, which has notably settled all employee-contractor lawsuits out of court in an effort to maintain its drivers as contractors, isn’t convinced the new law will impact their business model at all. “Contrary to some of the rhetoric we’ve heard,” Tony West, Uber’s Chief Legal Officer said during a call regarding the proposed new law, “AB5 does not automatically reclassify any rideshare drivers from independent contractors to employees.” West contended that drivers’ work “is outside the usual course of Uber’s business, which is serving as a technology platform for several different types of digital marketplaces.” Therefore, the company will maintain that its drivers are still independent contractors, even under the new test.
West also reiterated that Uber and Lyft will be pursuing a statewide ballot initiative in 2020 that would classify drivers as contractors. After failing to pass a similar ballot proposition in Austin in 2016 in response to legislation requiring ridesharing apps to fingerprint and background check drivers, Uber and Lyft fled the city.
But for California’s other employers, AB 5 could mean big changes to worker classification. Talk to an experienced employment attorney if you’re wondering how the bill could impact your small business.