On September 18, 2019 California Governor Newsom signed Assembly Bill 5 into law. The law is aimed at making California employers responsible for providing protections for independent contractors. This includes sick days, health benefits, and a minimum wage. Employers like Uber, Lyft, and others that rely on cheap labor rely on classifying their workers as “independent contractors” and not as “employees.”
In 2018, the Supreme Court issued its ABC ruling defining independent contractors. Do you think the average Uber driver fits this definition?
- The worker is free from the control and direction of the hirer in relation to the performance of the work, both under the contract and in fact
- The worker performs work that is outside the usual course of the hirer’s business
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hirer
This means that you cannot engage someone as an “independent contractor” if they perform similar duties to your “employees.” Assembly Bill 5 will now reclassify any “independent contractor” who does not pass the ABC test as an “employee,” and would now be eligible for benefits.
It would seem that the average Uber driver fails the ABC test. Uber realizes this and rather than arguing that their independent contractors are actually *independent*, they are mobilizing to raise a ballot initiative and get voters to exempt businesses like Uber from having to comply with Assembly Bill 5.
Big players in the “Gig economy” wish to avoid the overhead and expenses of following employment law, especially in markets like California which have numerous pro-employee protections. Overtime, minimum wage, employment taxes, payroll taxes, FICA, federal unemployment taxes, state unemployment taxes, workers comp insurance, all of these have previously been avoided by smart companies categorizing workers as independent contractors rather than employees. This is aside from retirement benefits, life insurance, and other benefits that becoming rare.
Since California is the fifth largest economy in the world, it is likely this new law will have ripple effects in other states. New Jersey and Massachusetts already use the ABC test.
Assembly Bill 5 included a list of exempt businesses which do not have to comply with AB5. These include insurance brokers, physicians, surgeons, dentists, veterinarians, lawyers, architects, engineers, private investigators, or accountants. As mentioned above, businesses like Uber and Lyft are spending a fortune to add themselves to the exemption list.