In 2018, the California Supreme Court’s Dynamex ruling redefined the definition of employee versus independent contractor through an “ABC test,” followed by many states. A year later, the Governor of California, Newsom, signed AB 5, which codified the Dynamex decision with certain exceptions.
According to AB 5, an employee is an employee and not an independent contractor, unless the employing agency can prove that all of the following conditions are met:
(A) The person is free from the control and direction of the employing company in connection with the execution of the work, both under the contract for the execution of the work and actually.
(B) The person carries out work that is outside the normal course of business of the lessor.
(C) The individual is ordinarily engaged in an independently established trade, profession, or business that is appropriate to the type of work associated with the work being performed.
Uber, Lyft and other “gig economy” players requested exemptions from the law, but lawmakers advised that those efforts were rejected. The Senate Working Committee’s analysis of the draft law dealt directly with this issue:
Finally, it should be mentioned that although there have been significant discussions in the media about disruptions, digital applications and the “gig economy”, this is more confusing than clarifying. On the one hand, when a customer insures a contractor’s services through an intermediary, it is unclear how well the people of California will be served when the law distinguishes between contact between the intermediary through the Yellow Pages and the Internet.
On the other hand, no matter how clever an internet application may be, it cannot lead to gold. Misclassification is misclassification. A company that uses the independent contractor model to undercut the employer-based model to reduce costs and achieve profitability or scalability is one that misclasses its workers. The historical reality of the capitalist marketplace and the state’s need to protect workers will not be undone by a clever branding initiative, “killer” application, or product placement in a Netflix special. Lead cannot be gold.
A first attempt to challenge AB-5 in court was unsuccessful. Instead, DoorDash, Lyft, Postmates and Uber have spent millions on Proposition 22 to spend nearly $ 200 million on an election initiative to get rid of the law, and are expected to challenge the law in court. The measure would treat app-based drivers as contractors, not workers, so they would not be protected by minimum wage, overtime, unemployment insurance and workers’ compensation laws. Prop 22, however, provides some form of minimum earnings for driving time (but not all hours worked), health care subsidies, and car insurance for certain skilled drivers.
A key element of Prop 22 is the restriction on change – it would require a seven-eight super-majority of legislation (an outrageous and nearly impossible standard). Stanford professor and labor attorney William Gould noted, “I’ve never seen anything like it. The companies try to separate the legislation from each agency. “It seems that any proposal that imposes such a requirement must receive the same vote at the ballot box, but that is not the requirement today.
Companies behind Prop 22 are threatening to discontinue or reduce services in California if the initiative is passed, but have secured themselves on this point. While Uber, Lyft, and others are threatening to pull back if Prop 22 fails, startups like Alto and Arcade City, which are following a staff-based model, could enter the room
Like the California Senate Labor Committee, opponents of Prop 22 claim it seeks to codify a business model based on underpaid workers.
Prop 22 is endorsed by the Republican Party, Chambers of Commerce, Police Unions, and Mothers Against Drunk Driving. It is opposed by the Democratic Party, trade unions and other progressive organizations.
For more information, see Ballotpedia.