Assembly Bill 5: California’s New Gig Economy Law

Author: Nicki Malekadeli
Posted on: November 4, 2019

Last September, California Governor Gavin Newsom signed the California Assembly Bill 5, which will require gig companies such as Uber and Lyft to reclassify their workers as employees rather than independent contractors. This means that rideshare drivers in California will get labor protections and benefits.  

The controversial bill was naturally met with resistance by sharing economy companies in Silicon Valley. After all, employment reclassification could dramatically alter their business. While the passing of the law is seen as a huge win by workers over ride-hailing giants, many drivers were still anxious about how the bill would affect their livelihood. On a similar vein, some wondered how the companies would respond to making their employees eligible for basic human rights like minimum wage and paid time off. 

There were mixed reactions that included excitement and growing concern from different stakeholders. Let’s take a closer look at the overall impact of the newly signed bill.

What It Means For Drivers

AB 5 California means that independent contractors such as rideshare drivers in California will finally be classified as employees. As a result, they will be entitled to labor protections and benefits such as minimum wage, sick leaves, and healthcare insurance. This was not a benefit that was readily available for them before the new California gig economy law was passed.

The law is a welcome development since many drivers report that they struggle to make ends meet. However, some drivers who prefer the flexibility and freedom that their job provides are scared that they might be mandated to follow a regular employee schedule in exchange for these benefits. Taking that idea further, some drivers expressed their general distrust for tech giants. After all, providing more benefits for employees entails a greater cost for these companies. As a result, they may have to let some of their drivers go, which could lead to unemployment.

What It Means For Sharing-Economy Companies

Gig economy companies are naturally hard-pressed to come up with an alternative to converting their fleet of drivers to full-time employees. It’s even harder when their businesses largely depends on contractors. Companies like Uber, for instance, are estimated to spend millions to comply with the new law. 

California Governor Gavin Newsom has signed the bill and has been pushing for a compromise among organized labor and gig companies. Ride-hailing companies like Uber have adamantly expressed that they will not reclassify their workers, though. Rather, they plan to use different strategies to make a case against AB 5. One of the strategies is that Uber can pass the ABC test of the law, which is a three-part test that determines a worker’s classification.

Under the AB 5 law, a worker should be classified as an employee unless it is proven that 

  • The worker is free from the company’s control;
  • The worker performs work that is outside the usual course of the company’s business; and 
  • The worker is engaged in an independent trade or business of the same nature as their job in the company.

Uber has reiterated that it is a tech company that refuses to acknowledge that drivers are the core of their business. Furthermore, the company asserts that the work their drivers do falls outside the usual course of a tech platform. As a result, they shouldn’t be considered employees but contractors instead.

The company is also proposing to preserve the independent contractor status of their drivers while offering basic labor rights, such as a fixed hourly rate. The proposition has been received with skepticism among drivers.

What It Means For The Rest of The Workforce

Despite ride-hailing companies being at the forefront of those who oppose AB 5, the law can have the biggest impact on businesses outside Silicon Valley. Newspaper publishers and trucking companies, for example, have expressed their strong dislike for the law. Trucking companies rely on thousands of freelance drivers. Turning them into employees with full benefits may cost these companies their business. Writers from California are also worried that digital publishers will stop working with them. 

The law may also push companies to put stricter work requirements in place and offer limited slots to cut costs, which could affect the availability of jobs for gig workers. However, the changes will not be immediate. The provisions of the law will take effect January next year. There are also several legal issues to iron out, especially since existing laws do not take the gig economy into account. Additionally, ride-hailing services have not given up on forwarding their propositions. So it’s still possible for labor unions and the companies to reach a compromise.

Contact an Experienced Equal Pay Lawyer in California

The AB 5 will no doubt change the landscape of the gig economy that most of us know. But despite being signed into law, there is still an ongoing debate among all stakeholders about whether or not it’s truly beneficial for gig workers. At this point, there are still many issues to address. Companies and workers alike are working hard to keep their voices heard but still have to wait until the law takes full effect next year.

Employees have the right to receive fair compensation and benefits from their employers. No employee should have to go through equal pay act discrimination just because their employer is determined to cut overall costs. Seek legal assistance from Mesriani Law Group’s experienced equal pay lawyers. We will fight aggressively to give you the compensation you deserve. Contact us today for a FREE consultation.