In 2018, the California Supreme Court’s Dynamex decision redefined the definition of employee v. independent contractor through an “ABC test” followed by many states, a year later California Governor Newsom signed AB 5 which codified the Dynamex decision with certain exceptions.
Under AB 5, a worker is an employee and not an independent contractor unless the hiring entity demonstrates that all of the following conditions are met:
(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.
Uber, Lyft and other “Gig Economy” players sought exemptions from the law, but the legislature pointed rejected these efforts. The Senate Labor Committee analysis of the bill addressed this issue head-on:
Finally, it is worth mentioning that, while there has been significant media discussion on disruption, digital applications, and the “gig economy”, this serves more to confuse than clarify. On one hand, if a client secures the services of a contractor through an intermediary, it is unclear how the People of California are well served if the law makes a distinction between the intermediary being contacted through the Yellow Pages or the internet.
On the other hand, an internet application, no matter how clever, cannot turn lead to gold. Misclassification is misclassification. A company that utilizes the independent contractor model to undercut the employer-based model to cut costs and achieve profitability or scale is a company that misclassifies its workers. The historical reality of the capitalist marketplace and the State’s need to protect workers are not repealed by a clever branding initiative, “killer” application, or product placement in a Netflix special. Lead cannot be gold.
An initial effort to challenge AB-5 in the courts proved unsuccessful, so instead DoorDash, Lyft, Postmates and Uber have spent millions on Proposition 22 to spend nearly $200 million on a ballot initiative to exempt themselves from the law and can be expected to challenge the law in court. The measure would treat app-based drivers as contractors and not employees so they would not be protected by minimum wage, overtime, unemployment insurance, and workers’ compensation laws. Prop 22 does, however, provide some form of minimum earnings for driving time (but not all time worked), healthcare subsidies, and vehicle insurance for certain qualifying drivers.
One key element of Prop 22 is the restriction on amendments – it would require a seven-eights supermajority of the Legislature (an unheard of and near impossible standard). Stanford Professor and labor lawyer William Gould noted, “I’ve never seen anything like that. The companies are trying to divest the Legislature of any authority.” It would seem that any proposition imposing such a requirement should need to obtain the same level of approval at the ballot box but that is not the requirement today.
Companies behind Prop 22 are threatening to pull out or reduce services in California should the initiative pass, but have hedged on that point. While Uber, Lyft and others threaten to pull out if Prop 22 does not pass, startups like Alto and Arcade City which follow an employee-based model could enter the the space
Like the California Senate Labor Committee, opponents of Prop 22 contend it seeks to codify a business model that relies on under-paying workers.
Prop 22 is supported by the Republican Party, chambers of commerce, police unions and Mothers Against Drunk Driving. It is opposed by the Democratic Party, unions and other progressive organizations.
Go to Ballotpedia for more information.