Californian lawmakers were in the news recently for formulating a law that is expected to change the business model of several new-age companies and regulate the gig economy.  Let us take a look at what the law aims to do, how companies like Uber have reacted and the different perspectives shaping the narrative. 

What is the California Assembly Bill 5 (2019)?

A few weeks ago California legislators approved a bill that essentially reclassifies contractors, freelancers, and contingent workers as full-time employees; thus, making them eligible for basic labor rights like paid time off, benefits, minimum wage, etc. The bill, named Assembly Bill 5, or, AB 5, makes it challenging for popular employers like Uber, Lyft (the second-most popular cab aggregator in USA) and DoorDash to consider their workers as contractors and confers full-time employment status on them. A few days after the bill was approved by the Senate, the Governor signed the legislation and the law will go into effect from 1st January 2020. Although some industries have been given exemptions, ride-sharing and delivery companies are very much under its purview.  

The law is being viewed as the result of the long process to get contractual workers their due and will ensure that employers apply the famous “ABC Test ” to determine the nature of the employment. The test identifies a contractor as someone (a) independent of the hiring entity’s control and direction about how they perform their work; (b) engaged in work different from the hiring entity’s business; and (c) conducting an independent business in the same field as the work they’re doing for the hiring entity. While the law makes way for contractual workers to be covered under wage and benefit laws, it doesn’t guarantee the right of collective bargaining or unionizing, since it is a federal matter. What’s more, legislators have also given cities in California the right to sue organizations that do not comply with the law. 

Supporters of the bill say that contractual workers, especially the likes of Uber drivers, usually earn less than minimum wage after taking into account vehicle expenses and the extra taxes

The debate gained momentum in May this year when the Assembly passed the legislation and Uber and Lyft jumped into action. Top executives from both the companies (otherwise bitter rivals) co-authored an op-ed piece in the San Francisco Chronicle  and argued that classifying drivers as employees would “pose a risk to their business”. They also reportedly encouraged and paid employees to oppose the bill by signing petitions and attending rallies. Several back-door negotiations with Californian unions with alternative classifications were also suggested by Uber and Lyft; only to be rejected by driver groups .

What has the reaction been?

As anticipated, the passage and signing of the bill received a polarized reception. On the one hand, companies like Uber and Lyft are publically criticizing the bill and have promised to fight it; and on the other, labor activists, politicians and lawyers are considering it a landmark law. So, while some experts are saying that AB 5 is the “antidote to the excesses by Uber and Lyft ”; others are convinced that the law will weaken the very foundation of the gig economy. Supporters of the bill say that contractual workers, especially the likes of Uber drivers, usually earn less than minimum wage after taking into account vehicle expenses and the extra taxes . Those opposed to the bill state that benefits and security is the trade-off that workers willingly make in exchange for the freedom to have a flexible work schedule, minimal interference from the organization and the choice to work for multiple companies simultaneously. 

Uber has gone as far to say that the company need not comply with the new bill because under the ABC test, the drivers’ work is outside the usual course of business for Uber, which is primarily a tech-platform for different types of digital marketplaces. In other words, Uber is claiming that drivers aren’t core to its business, and hence, the law doesn’t apply to them. This has already resulted in a class action lawsuit being filed by labor attorney Shannon Liss-Riordan on the behalf of Uber drivers, which is urging the courts to issue an injunction to enforce the compliance of AB 5 at Uber. “We are not arguing for the status quo, nor are we denying that independent work needs to be improved,” Uber said  in releasing its framework, which many considered to be contradictory. 

Adrian Durbin, Senior Director of Communications, Lyft, said that the state “missed an important opportunity to support the overwhelming majority of rideshare drivers who want a thoughtful solution that balances flexibility with an earnings standard and benefits. We are fully prepared to take this issue to the voters of California to preserve the freedom and access drivers and riders want and need.” 

The reclassification of drivers as full-time employees will cost Uber $500 million and Lyft $290 million in California alone

What does the future look like?

Lyft and Uber have clearly stated that they are ready to legally challenge the law and deploy strategies to prevent its application on them. According to one estimate, the reclassification of drivers as full-time employees will cost Uber $500 million and Lyft $290 million in California alone, which is bad news for both these companies that are already in deep red. This explains why the legislation has become an existential question for companies like Uber, Lyft and DoorDash and their deep-rooted commitment to oppose it. Uber and Lyft are said to be actively working with politicians and labor groups to frame a follow-up piece of legislation that would barter rights like collective bargaining and a minimum wage in exchange for employee reclassification. In case this fails, Uber, Lyft and DoorDash have already pledged to allocate $30 million each to push for a ballot initiative and campaign to exempt them from the legislation by creating a new category of cab-aggregator drivers. 

Uber and Lyft have also said that changes made in the classification of their workers will force them to change the rules about shifts, which means that they will hire fewer drivers and take away their flexibility to decide their own schedule. It is important to note that there has been some opposition to the legislation within the driven community as well. Many gig workers are worried that an employee status will take away the flexibility of the job, the prime reason why they took it up in the first place. The development is also an important milestone against corporate lobbying as over the past few years, several companies have successfully lobbied for the passage of laws that identify drivers as contractors in more than half the states in USA. Thus, even states which legally followed the ABC test were unable to classify workers as employees due to the overriding laws which explicitly classified them as contractors.

Many are considering AB 5 to be a landmark law that will prevent worker exploitation by tech companies and will increase accountability. The bill will not only elevate the employment status of over a million low-wage workers in California, but also set the precedent for other law-making bodies all over the world. Already, other cities, like Seattle, New York, Oregon and Washington, are said to be working on their own versions of AB 5 . Similarly, one can expect the law to be considered in Britain as well, where the Supreme Court is due to hear arguments related to Uber’s appeal against a labor tribunal’s decision to classify drivers as workers and provide them minimum wage and vacation. The fact that the legislation has been endorsed by leading presidential candidates in the upcoming US elections means that the issue is going to be discussed extensively in the near future as well. 

It is unclear how this development will impact the ride-hailing experience and whether companies will pass on this cost to the customers, thus, ending the era of subsidized rides. Nonetheless, AB 5 has made an attempt to regulate an entire industry that has resisted scrutiny on the back of innovation and job creation. The fact of the matter is that contractual workers can be found in all kinds of jobs and industries and there is no denying that the way the gig economy currently operates leaves a lot to be desired for the quintessential gig worker. In order to begin the process to reframe the debate and design an inclusive future of work, AB 5 might just be the tipping point that labor groups and politicians need. One can expect similar pieces of legislation that are aimed at regulating modern workplace systems and processes in the future and organizations must adapt to these changes or else face political and public backlash. 

The debate around what constitutes a gig worker and how organizations should manage them is set to intensify. The first step in the larger battle to regulate the future of work and future workers has been taken and it remains to be seen how organizations respond.