We’ve known this was coming for some time, but California is now ready to vote on Assembly Bill 5, designed to basically try to put Uber, Lyft and any of their gig economy competitors out of business in the state. The vote could come as soon as today. But the way they wound up wording it may end up giving the ride-sharing companies an immediate out once the inevitable challenges make it through the courts. (Insider)
Uber and Lyft’s day of reckoning is here.
California senators are set to vote as early as Tuesday on Assembly Bill 5, a proposed law that would expand many employment protections to drivers while potentially wreaking havoc on the company’s balance sheets.
The bill, as proposed in 2018 by Assemblywoman Lorena Gonzales, would codify a three-part test to determine a worker’s status as either an employee or independent contractor.
The Insider article describes AB5 as something that could “devastate Uber and Lyft’s business model.” That’s a fair description because that’s precisely what the legislation is intended to do while pretending to offer better worker protection. What they’re trying to do is force the companies to treat the drivers as if they are regular, full-time employees instead of private contractors, meaning they would have to pay the same wages and benefits that all traditional businesses have to cover in California. That, of course, would price the ride-sharing companies out of the game almost instantly.
But as I suggested above, this effort may wind up failing. The Supreme Court has already ruled on who is or isn’t a full-time employee and they apply a three-question test to make that determination. AB5 is forced to follow the same path, and the drivers probably don’t qualify. As listed in the linked article, in order to be considered a private contractor, the employer must be able to show that the worker:
1. is “free from the control and direction” of the company that hired them while they perform their work.
2. is performing work that falls “outside the hiring entity’s usual course or type of business.”
3. has their own independent business or trade beyond the job for which they were hired.
As to number one, the drivers are not under the direction and control of the company. They work when and where they feel like turning on the app. They decide which rides to take or pass on. That part seems pretty clear.
For number two, this may come down to a technicality, but the work of the drivers is, well… driving. Uber and Lyft don’t operate any vehicles for hire. They run an app that people can load up on their phones and use with the company’s approval.
Number three is the tricky one. Many (if not most) Uber and Lyft drivers are people who do it in their spare time for some extra cash and frequently have other jobs. Others are retired. But not all of them. There are some drivers I’ve spoken to who are just out there hustling all day and driving for these companies has become a full-time job. So how would the rules apply to the entire body of drivers? That’s a tougher one to call.
Meanwhile, the two companies are pushing back against AB5 already. They are lobbying to have the state create a new, third classification of workers to cover the gig economy. It would be something between full-time employees and independent contractors. And if the legislature won’t do it, they plan to take it to a public referendum next year.
In other words, this fight is far from over. You can read about AB5 and track its progress here.