Uber and Lyft employ over 525,000 drivers in California, according to a report by the Wall Street Journal. Office furniture to full-time Bay Area Uber and Lyft drivers consists of their driver seat, passenger seat and backseat. Most drivers do it as a side gig. But Uber reported that 8% of their drivers work 40 hours or more per week. Well-intentioned California lawmakers believed that Uber, Lyft, Doordash, Grubhub, etc. were taking advantage of workers by not compensating them fairly. Their solution, however, may have done more harm than good.
Governor Gavin Newsom signed Assembly Bill 5 into law on September 18, 2019. AB 5, also known as the "gig worker law," went into effect on January 1, 2020. It is the codification of the 2018 California Supreme Court decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles. The case analyzed what was known as the "right to control" test to determine employment status. The test was established in the 1989 case S.G. Borello & Sons, Inc. v. Dep't of Indus. Relations, 48 Cal. 3d 341.
The right to control test had been common law in California since the decision. Borello, a Gilroy-based grower of cucumbers and other crops, employed migrant workers who they classified as "sharefarmers." The deputy labor commissioner for the California Division of Labor Standards Enforcement issued a desistance order against Borello for failure to secure workman's compensation for the 50 "sharefarmers." Borello took the matter to court, arguing that sharefarmers are independent contractors under the right to control test. An L.A. County judge sided with the government. The decision was reversed on appeal. The California Supreme Court reversed the appellate court decision, and ruled that the workers were in fact employees, not independent contractors.
Of course that was in 1989 before internet, smartphones and ride-sharing companies.
Several delivery drivers filed a class-action lawsuit against Dynamex, a package delivery service. They alleged that Dynamex misclassified them as independent contractors when they were in fact employees. The misclassification violated Wage Order No. 9 issued by the Industrial Welfare Commission. The case was ultimately decided by the California Supreme Court, which created the "ABC test" to determine employment status.
The ABC test is a three-prong analyses that establishes: (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.
Both ride-hailing companies lobbied hard against AB 5. The companies proposed paying drivers $21 per hour, provide sick leave, and allow drivers to form a union. That was not enough and the law went into effect at the beginning of the year. The developments since have been wide-reaching.
The main component of the law is capping assignments at 35 per year for independent contractors at one company. Once a contractor hits that mark, they must be classified as an employee. The law was meant to stop companies from circumventing taxes and not offering medical benefits and paid time off. Lawmakers seemingly did not consider the impact of the law on other companies besides Uber and Lyft.
A 2019 survey by The Freelancer found that 88% of writers, graphic designers and other creatives strongly oppose the bill. Another 87% said lawmakers do not understand the gig economy enough to pass a law like this. That point is already playing itself out. Vox Media fired 200 California-based writers in December to avoid classifying them as employees in 2020. State Senator Patricia Bates, R-Laguna Hills, recently introduced a measure that would exempt writers and newspaper carriers from the law. But the damage is already being felt.
Uber is currently testing a program in Palm Springs, Sacramento, and Santa Barbara that allows drivers to set their own rates. This would strengthen the argument that drivers are independent. But many drivers in those areas have already expressed frustration with the new feature. They get far fewer fares since riders choose the drivers with the lowest price.