California Destroys $1 Trillion Gig Economy With New Law
October 31, 2019
By Heidi Lynne Kurter – Contributor, Forbes
California isn’t shy when it comes to making the daily headlines. Often heralded as a progressive utopia, the Golden State recently signed into law, Assembly Bill 5 (AB5) that will change the landscape of the gig worker economy. Stemming from the groundbreaking court decision established in Dynamex West Inc. v. Superior Court of Los Angeles, the California Supreme Court found Dynamex’s workers were misclassified as independent contractors rather than employees.
In a unique twist, the court shifted the burden to the nationwide courier and delivery service to prove their drivers were not employees by using the “ABC test.” Under this new test, an individual is presumed to be an employee, unless the employer can prove all of the following:
(A) the worker is free from the company’s control (B) the worker performs work that isn’t central to the company’s business and (C) the worker has an independent business, trade or occupation in that industry.
This three-part standard will be the deciding factor for AB5 on whether workers are properly classified as independent contractors or need to be reclassified as employees. Many employers view this new law as a nightmare and gig workers feel it’s an attack against their freedom and independence.
According to the Freelancing in America survey, there is a reported 57 million American freelancers contributing an excess of one trillion dollars to the economy each year. Recent data shows more than 75% of freelancers are working independently by choice. Due to the accessibility of apps and sites like Upwork, Instacart and Uber, to name a few, people can work on terms they prefer and accept opportunities that feel right for them.
If freelancers are reclassified as employees, they’ll have to trade in their freedom for structure, potentially losing their ability to set their own hours. Of course, that’s only if the company chooses to continue the relationship and convert them into an employee. Lorena Gonzalez, author of Assembly Bill 5, insists the goal of this law is “to create new good jobs and a livable, sustainable wage job.” Supporters emphasize the benefits and protections gig workers will receive such as health care subsidies and a guaranteed $12 state minimum hourly wage, but fail to address the consequences of the new law.
Upwork’s survey revealed 51% of freelancers said no amount of money would entice them to return back to or take a traditional job. This is a result of them earning more than 70% of workers throughout the United States with a median hourly rate of $28 per hour, more than half of the state minimum wage. As the labor market strengthens, the next generation of workers are more empowered by the flexibility, pay and opportunities freelancing brings over the benefits of a corporate job.
In fact, the workers of Uber, DoorDash and Lyft are fighting back. Together, they formed a group on behalf of its workers, called Protect App-Based Drivers and Services vowing to overturn portions of AB5 that’s expected to pass in January 2020. Unfortunately, this group doesn’t carve out an exemption for freelance writers.
Gonzalez defends the bill saying journalists, photographers and writers can submit up to 35 public works to publishers per year before being classified as an employee. However, “public works” isn’t clearly defined. It remains unclear if that applies to the subsidiary or the parent company and all of their subsidiaries.
The Hollywood Reporter stated many publications are going to avoid working with California freelancers to avoid potential lawsuits. They’ve admitted to already seeing SEO, transcription and writing job notices explicitly state California freelancers won’t be considered.
Gonzalez fails to understand that some freelancers write around 35 submissions in one month alone. Randy Dotinga, former president of the American Society of Journalists and Authors, protests the law saying, “a lot of freelancers don’t want to be employees” because in many cases freelancing is “more stable and lucrative than staff jobs.”
With recent lawsuits involving FedEx and Uber misclassifying their independent contractors, it’s undeniable workers of the gig economy need more rights, benefits and protection. Instead of passing yet another law, California needs to focus on enforcing the one it already has in effect.
In January 2012, California passed Senate Bill 459 (SB459) making it unlawful for companies to wrongfully classify workers. Those found guilty risk being fined anywhere from $5,000 to $15,000 per violation and $25,000 for repeated offenses. SB459 also empowers the Labor Commissioner to assess civil and liquidated damages against violators. Yet, the law hasn’t been used to challenge worker misclassification at any of the gig platform companies such as Uber or Lyft.
Gonzalez’ intentions might be good, but the stark reality is hundreds of thousands of independent contractors in California will become employees under the bill. Everyone from manicurists, dancers, journalists, writers, bartenders and delivery drivers will be impacted. Business Insider estimated around 7,200 workers have lost their media jobs this year alone. As media faces major challenges in business, this number will only continue to climb as publications lack the means to bring on more employees.
The vague language of the law creates more concern about its potential impact. As of now, all that’s known is, a diverse range of professions will be affected while others will be exempt. Consequently, at least one million workers will be impacted creating more distance in the employer-employee relationship as it regresses back to traditional standards. Former freelancers who once had the taste of freedom will suffer the most.