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California Lawmakers Pass Gig Economy Rights Bill

image for hedgehog94 / Getty Images
hedgehog94 / Getty Images
  • If made into law, Assembly Bill 5 will require businesses to pay gig workers minimum wage and benefits.
  • After passing in the California Senate by a vote of 29-11 late last night, the bill is headed back to the assembly for passage of any amendments.
  • California Gov. Gavin Newsom has yet to sign the newly passed bill but recently wrote an op-ed in favor of it.

Editor's note: Following the passage of Assembly Bill 5 in California, Uber Chief Legal Officer Tony West held a conference call with members of the media, during which he said the state was "missing a real opportunity to lead the nation by improving the quality, security and dignity of independent work." Referencing the ABC test that determines whether a worker is an employee or independent contractor, West argued that the work Uber's drivers do "is outside the usual course" of the business, stating that it is actually a technology platform for "several different types of digital marketplaces." As such, he said Uber plans to continue classifying its drivers as independent contractors after AB 5 goes into effect next year.

"At Uber we embrace the challenge to improve work for drivers. But we will continue to defend our ability to enable on-demand, independent work," West said. "We continue to hold out hope that California lawmakers will seize the historic opportunity before them to dramatically improve the quality and security of independent work; strengthen the 21st-century labor movement; and protect California's innovation economy."

Major changes in the way companies like Uber and Grubhub operate in California could take effect next year, as a bill aiming to give gig workers better wages and benefits inches closer to the governor's desk.

Lauded by state legislators as a way to help people make a fair living as Uber drivers, DoorDash delivery drivers and other gig-based workers, Assembly Bill 5 (AB 5) passed last night in the California Senate with mostly Democrats leading the way to a final vote of 29-11. With the bill heading back to the California Assembly for final votes on amendments, it will soon make its way to Gov. Gavin Newsom, who recently wrote an op-ed in support of the legislation.

Prior to voting on the bill, Sen. Maria Elena Durazo (D) said the bill countered efforts by major companies like Uber and Lyft to reduce their operating costs by underpaying workers they designate as independent contractors.

"Let's be clear – there's nothing innovative about underpaying someone for their labor and basing an entire business model on misclassifying workers," she said.

First introduced back in December 2018, AB 5 originates from an April 2018 ruling established in Dynamex Operations West Inc. v. the Superior Court of Los Angeles, which decided that the company was wrongfully classifying its workers as independent contractors.

In that case, court officials applied the ABC test, which forces companies to prove that a worker can make their own schedule, isn't central to operations and has an independent business in the industry before they are classified as an independent contractor. If all three criteria aren't met, then a worker must be classified as an employee. Judges found that Dynamex's workers were employees because they "[perform] services for a hirer ... for purposes of claims for wages and benefits."

While working as a 1099 contractor and not as a W-2 employee, people can determine their own schedules, but companies don't have to worry about payroll taxes, overtime pay or benefits like workers' compensation.

At a rally in support of the bill she authored this past July, Assemblywoman Lorena Gonzalez (D-San Diego) said the state was unable to "sit by while companies pass off their own costs of doing business onto California's taxpayers and responsible businesses, while depriving millions of workers of the labor law protections that they are rightfully entitled to."

If made into law, AB 5 will require that gig-based companies like Lyft, Uber and DoorDash would designate their workers as employees, forcing them to pay a minimum wage and provide benefits. Numerous workers' rights advocates praised state legislators for the recent passage.

"AB 5 is a powerful counter to the corporate greed and rampant exploitation that's driving inequality across our state in emerging and traditional industries alike," said the California Labor Union in a prepared statement. "This historic victory clears the way for the bill to become law, setting workers and their families on a path to a better future and ending abuses that are all too common."

Activists and lawmakers in support of the bill may be riding high on AB 5's latest successes, but opponents like Uber CEO Dara Khosrowshahi and Lyft co-founders Logan Green and John Zimmer are expected to challenge the potential law.

"Reclassification misses two important points: First, most drivers prefer freedom and flexibility to the forced schedules and rigid hourly shifts of traditional employment; and second, many drivers are supplementing income from other work," wrote Khosrowshahi, Green and Zimmer in a June op-ed in the San Francisco Chronicle. "It's also no secret that a change to the employment classification of ride-share drivers would pose a risk to our businesses."

Approximately 220,000 drivers are currently employed by Lyft and Uber in the state of California, according to Capital Public Radio. If this bill is made into law, it will have a major impact on those companies and would more than likely find its way into other states.

For the last month, Uber, Lyft and DoorDash have committed tens of millions of dollars to fund a 2020 ballot initiative that would let them keep classifying their drivers as independent contractors. The move came after lawmakers made exemptions for doctors, dentists, real estate agents, hair stylists, salespeople and other workers. Along with the likes of Uber and Lyft, newspapers and other companies are also trying to earn exemptions.

As the companies stare down the barrel of state oversight, Uber and Lyft both committed to making changes in how they pay their employees on their own.

For its part, Uber offered to "strengthen protections for rideshare drivers" by paying them a minimum of about $21 per hour; offering benefits like paid time off, sick leave and a form of workers' compensation; and "empowering drivers to have a collective voice with rideshare companies, and the ability to influence decisions about their work."

Lyft also offered to pay a minimum of $21 per booked hour and to set up a "rideshare drivers benefit fund," which would include protections for injured drivers in California, as well as paid sick leave and paid family leave for drivers who spend 20 hours or more behind the wheel for booked rides.

Despite those peace offerings, the bill is expected to move forward in the coming weeks.

Andrew Martins

Andrew Martins is an award-winning journalist with a Bachelor of Arts in journalism from Ramapo College of New Jersey. Before joining Business.com and Business News Daily, he wrote for a regional publication and served as the managing editor for six weekly papers that spanned four counties. Currently, he is responsible for reviewing tax software and online fax services. He is a New Jersey native and a first-generation Portuguese American, and he has a penchant for the nerdy.