California is the legendary homeland of the New Economy — but also of some of the nation’s most politically powerful labor unions. They have clashed this year in the state’s legislature over a proposed new employment law that would keep “gig economy” employers (famously, rideshare companies like Uber and Lyft, and delivery services like DoorDash) from classifying their hirelings as “independent contractors” who don’t qualify for many benefits or for labor protections. At this point the unions are winning, as the Los Angeles Times reports:
With a deadline nearing, California state senators advanced sweeping legislation Tuesday night to limit the number of Californians classified as independent contractors. And after an intense lobbying campaign, lawmakers also made a last-minute deal that would ease the measure’s effects on the newspaper industry.
Senators approved Assembly Bill 5 29-11 after two hours of debate, which included GOP senators offering a dozen failed amendments that would have exempted some truck drivers, physical therapists and other workers. The measure still requires passage in the state Assembly before the end of the week when the Legislature adjourns for the year. Gov. Gavin Newsom has endorsed the bill.
The legislation aligns California law with a 2018 ruling by the state’s Supreme Court scrapping a traditional, permissive test for determining when employers could treat employees as contractors. Gig-economy companies had hoped to win exemptions or implementation delays from the legislators, but despite intense lobbying and the efforts of essentially powerless Republicans, they generally didn’t succeed, though as the Times notes, “[i]nsurance brokers and some who work in real estate professions, marketing and the arts would remain subject to the rules that existed before the 2018 court ruling” (that’s in addition to the special deal for newspapers, which won a one-year delay in the law’s application to their delivery drivers). Unless something strange happens in the next few days, Assembly Bill 5 will become law. Here’s the new test the bill would establish:
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.
In other words, an “independent contractor” has to be independent, not just a wage slave with no power to “contract” for anything. And the effects of the new rules go beyond workers in the big app companies, as the New York Times notes:
[T]he legislation will affect at least one million workers who have been on the receiving end of a decades-long trend of outsourcing and franchising work, making employer-worker relationships more arm’s-length. Many people have been pushed into contractor status with no access to basic protections like a minimum wage and unemployment insurance. Ride-hailing drivers, food-delivery couriers, janitors, nail salon workers, construction workers and franchise owners could now all be reclassified as employees.
The proposed law will also make it possible for these newly classified employees to unionize, which certainly helped ensure labor support.
“Gig economy” employers, of course, claim they cannot afford the new costs, noted the New York Times when the court ruling came down last year:
Industry executives have estimated that classifying drivers and other gig workers as employees tends to cost 20 to 30 percent more than classifying them as contractors. It also brings benefits that can offset these costs, though, like the ability to control schedules and the manner of work.
“It’s a massive thing — definitely a game-changer that will force everyone to take a fresh look at the whole issue,” said Richard Meneghello, a co-chairman of the gig-economy practice group at the management-side law firm Fisher Phillips.
Many of these employers would prefer to pursue alternative ways to reimpose the old rules, as Vice reports:
All of this has led to an unholy alliance between Uber, Lyft, and DoorDash, with each company pledging $30 million to push a ballot initiative meant to undermine AB5’s reclassification of their contractor workforce.
The threatened initiative would go forth under the banner of “worker flexibility,” not to mention threats that the companies (which can still somehow afford the initiative campaign) might sharply cut employment, go out of business, or leave the state. It’s entirely possible this whole ballot initiative drive is a ploy to convince Democratic leaders to go back to the negotiating table and relax the new rules. But with the state already due to endure an insanely expensive and noisy fight over a 2020 ballot initiative to repeal Prop 13 tax protections for commercial real estate — not to mention presidential and congressional contests — it’s a threat with some real teeth.