California Legislature Prepares to Rein In Gig Economy

Rich Pedroncelli/Associated Press

Supporters of California’s Assembly Bill 5, which would reverse the rampant worker misclassification occurring in industries from ride-share to trucking to retail and food delivery, rally in July at the Capitol in Sacramento.

Capital & Main is an award-winning publication that reports from California on economic, political, and social issues. The American Prospect is co-publishing this piece.

If you’re trying to make sense of the epic legislative battle underway in California pitting Uber, Lyft and their fellow gig economy employers against labor and its allies, consider the case of truck driver Daniel Linares. As Capital & Main reported in 2014, Linares, over the course of 20 days, hauled 110 cargo containers at the ports of Los Angeles and Long Beach for a company called Pacific 9 Transportation. His gross earnings for that period were $3,191—but his paycheck indicated that he actually owed Pacific 9 nearly $300, to cover insurance, registration and other expenses. In other words, he had received a negative paycheck.

Linares’ unfortunate fate was a byproduct of his status as an independent contractor—a designation that denies workers the considerable rights of formal employment while saddling them with sometimes crippling financial costs.

Negative paychecks are not the norm for the growing ranks of gig economy workers—though poor wages and lack of benefits are—but they dramatize what can happen when workers are misclassified as independent contractors. And they underscore why California is poised to enact a law that would reverse the rampant misclassification occurring in everything from ride-share companies to trucking to retail and food delivery businesses such as DoorDash and Instacart.

Assembly Bill 5, sponsored by Lorena Gonzalez and backed by Governor Gavin Newsom, would codify the California Supreme Court’s 2018 Dynamex Operations West v. Superior Court decision, which established a basic test to determine whether a worker was an independent contractor or an employee. The key factor is whether workers are fundamentally free from the control of the hirer—if not, according to Dynamex, then they must be classified as employees, and afforded a set of rights. This includes the ability to join a union, as well as minimum wage guarantees, workers’ compensation, unemployment insurance and overtime.

Independent contractors—including those driving for companies such as Uber—enjoy none of these rights. And with the gig economy continuing to expand, it was only a matter of time before the phenomenon of worker misclassification ran headlong into legal and political challenges.

While the courts have sided with misclassified workers in some cases, California would become the first state to establish sweeping legislation curtailing the use of independent contractors. AB 5 strikes at the heart of the business model upon which the gig economy has grown, so much so that Uber, Lyft and DoorDash are threatening to spend $90 million on a 2020 ballot measure that would create an industry carve-out covering drivers, should AB 5 become law.

That threat does not appear to be swaying enough legislators to kill or substantially water down the bill. While the prospect of a 2020 ballot bloodbath may be daunting, so too is California’s sky-high level of inequality. The Golden State ranks fourth-worst in the nation (47th out of 50 states) for economic inequality, and while gig jobs aren’t the only reason, they have become a highly visible symbol of an economy that, despite the official low unemployment rate, is leaving too many behind.

If AB 5 becomes law it could very well open the floodgates to similar legislation in other states that have been hard hit by worker misclassification. At a time when the Trump administration is rolling back labor protections, state and local governments may increasingly use their power to try and lessen inequality. While they will encounter fierce opposition from businesses that, over the past several decades, have relied on misclassified workers, those companies may now find themselves in unfamiliar territory—on the defensive.

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