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California’s New Gig Economy Law Is All Bark, No Bite

This article is more than 4 years old.

California’s Assembly Bill 5 (AB5) legislation was signed into law this week by Governor Gavin Newsom. The law changes the test used to determine whether a worker is an employee or an independent contractor. The intent of the bill is to extend to independent contractors the rights, benefits, and protections currently only available to employees. It’s a laudable goal, but one that won’t be accomplished though AB5. There are a number of reasons why the new law is ineffective:

The same law has been in effect for a decade in Massachusetts, where Gig Economy platform workers are still independent contractors: The main provision of AB5 requires businesses to use a three-part “ABC test” to determine if a worker is an employee or an independent contractor. A worker is considered an employee unless the business can demonstrate that the worker meets all three conditions of the test:

(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.

(B) The person performs work that is outside the usual course of the hiring entity’s business.

(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

The ABC test has been the law in Massachusetts for over a decade, with no discernible impact on the worker classification habits of Gig Economy platform companies. As far back as 2008, the Massachusetts Attorney General wrote an Advisory on the law noting the complexities of enforcing it, particularly the (B) test, since the “usual course” of business is not defined and the test lacks judicial precedence for guidance.

It’s a curious choice for California to model their legislation on a law that failed to re-classify  Gig Economy platform workers as employees elsewhere.  

California already has a worker misclassification law it’s not enforcing: California Senate Bill 459 is an existing law that makes it unlawful for companies to misclassify workers. This law puts its money where its mouth is. It gives the state Labor and Workforce Development Agency the power to fine companies $5,000 to $25,000 per violation for willfully misclassifying workers and allows the state Labor Commissioner to assess additional civil and liquidated damages.

The law has been in effect since January 1, 2012 but so far has not been used to challenge worker misclassification at Uber, Lyft, or other Gig Economy platform companies.

The AB5 legislation is unclear, subjective and vague: The primary problem with worker classification in every state, and within the federal government, is that there is no clear, consistent, and objective standard to decide which workers are employees and which ones are independent contractors. This legislation perpetuates that problem. AB5 relies on criteria that are undefined, subjective, and therefore unenforceable as written. The ABC test cannot be effectively implemented because the key terms and criteria, such as “control,” “usual course” and “customarily engaged” are undefined and subject to varying interpretations.

If California wanted a law that could be implemented and enforced, it should have clearly and objectively defined the key terms of the ABC test.

Enforcement will be slow and uncertain: AB5 does not tell businesses that they must reclassify their workers as of January 1, 2020. Instead, the new law allows cities and the state to challenge a company’s worker classifications through legal action. California government agencies will have to spend time and legal fees to sue companies and determine through the courts whether the workers are employees or independent contractors.

Those lawsuits can take years. The Dynamex ruling that the AB5 legislation codifies took a decade to litigate. There is also no guarantee of their outcome. In both Massachusetts and California, drivers who wanted to be classified as employees have brought class-action lawsuits against Uber. In both states the lawsuits were settled and the drivers maintained their independent contractor status.

The legislation doesn’t reflect the realities of the gig economy: The data available on independent workers consistently shows that more than 75% are working independently by choice. Data about workers on platforms, and data from the platform companies themselves, reveals that most independent workers are working part-time or on the side to supplement their regular work and income. AB5 attempts to force fit the square peg of today’s varied and independent workforce into the round hole of our outdated two-category worker classification system.

California’s Bark Is Much Worse Than Its Bite

If California wants to force Gig Economy platform companies to classify their workers as employees, it has a number of tools in its legislative and legal toolbox to do so. Senate Bill 459, provisions of the state’s unemployment insurance and worker’s compensation statutes, and even the Dynamex ruling already give California the ability to challenge, bring to court, fine and penalize companies that it suspects of misclassifying workers. More than passing another law, California needs to demonstrate its willingness and ability to implement and enforce the laws that are already in effect.

The intent of AB5s authors to extend benefits, rights, and protection to California’s workers will be thwarted by the subjective and ill-defined nature of the ABC test as well as the time-consuming and uncertain legal road the government must travel to enforce it.

California’s independent workers need new labor laws, but ones that are actionable, clear, and go beyond our obsolete classification system to extend rights, benefits, and protections to all workers, not just employees.

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