Sweeping California law shakes up gig economy

Tech companies, drivers and regulators are scrambling to grapple with a new law in California that will require “gig economy” companies to offer their workers a full range of employee benefits.

There are a number of lingering questions about the controversial legislation, which California Gov. Gavin Newsom (D) signed into law last week — including what it will look like by the time it’s implemented.

{mosads}Newsom has already vowed to seek changes that carve out a middle ground between the labor organizers behind the push and companies like Uber and Lyft, which are planning to funnel millions of dollars into a ballot measure intended to overturn the law.

“I will convene leaders from the Legislature, the labor movement and the business community to support innovation and a more inclusive economy by stepping in where the federal government has fallen short,” Newsom wrote in a signing statement last week.

But no matter where the state-level debate winds up, labor advocates and industry watchers say the law — dubbed Assembly Bill 5, or A.B. 5 — is a game-changer when it comes to regulating how gig economy companies are allowed to treat their workers. And if other states adopt California’s approach, companies like Uber, Lyft and DoorDash will find it harder to move forward with the same business model.

“California is setting an example for the nation on the future of the gig economy,” Alex Rosenblat, a researcher focused on the future of work with the Data and Society Research Institute, told The Hill.

For years, app-based service providers like DoorDash and Uber have avoided providing full benefits to employees by designating them as independent contractors.

But under the California law, most gig economy workers in the state will be classified as employees, allowing them to access benefits like a minimum wage and labor protections, including the right to organize.

Organize is exactly what they intend to do. Nicole Moore, an organizer with Rideshare Drivers United — the largest rideshare organization in California — told The Hill that thousands of drivers are set to band together to negotiate their rights with companies like Lyft and Uber.

“A.B. 5 is an incredible beginning to getting [the gig economy] under control, and it’s principled unions, brave politicians and, frankly, drivers who were able to get this law passed,” Moore said. “Now, because the companies have said they’re not even going to follow the law, it’s become our job … to force them to follow the law. And we’re preparing to do that.”

“We’re building our union right now,” she said.

Uber and Lyft have made it clear that they believe the California law is an existential threat to their business. Analysts have estimated the legislation could raise expenses for the companies by as much as 15 to 20 percent, and Uber has said outright that it will not classify its drivers as employees, flouting the law explicitly written for them.

“Because we continue to believe drivers are properly classified as independent … drivers will not be automatically reclassified as employees, even after January of next year,” when the bill would go into effect, Uber chief legal officer Tony West said in a statement.

Lyft has not come out as strongly in public, but it has threatened to “take the issue to the voters of California” through a ballot initiative that would overturn the law.

{mossecondads}DoorDash, Uber and Lyft have committed to spending $30 million each to promote the ballot initiative.

In negotiations over the past several months, the companies have been floating an “alternative to A.B. 5” that would include a $21-per-booked-hour minimum wage and a benefits fund, but that proposal has so far failed to gain traction among  critics of the companies.

“Why would we bargain away our employee rights?” Moore said in response to the plan.

The law empowers city officials to sue any violating companies for failing to properly reclassify their workers. Experts said court will likely be the venue for the fight over the gig economy, particularly in California, where Uber and others are setting themselves up for a barrage of lawsuits.

But more broadly, the widely watched battle over AB5 will likely spark a sea change in how various states, and potentially even the federal government, take on the gig economy’s fast-and-loose relationship with labor laws.

“As a society, we’ve agreed there’s a minimum set of labor standards that we need to meet,” Ken Jacobs, chairman of the University of California, Berkley Labor Center, told The Hill. “I think where we are right now, the gig companies are going to learn how to operate in that world.”

A coalition of labor groups in New York is campaigning to pass similar legislation at the state level, calling on the legislature and governor to protect New York’s gig economy workers.

“There’s a really strong coalition that’s forming,” Bhairavi Desai, the executive director of the New York Taxi Workers Alliance, told The Hill. Her group represents yellow cabs as well as ride-hailing drivers, totaling around 22,000 members, she said.

She said they plan to ramp up their work lobbying lawmakers when the New York State Legislature is back in session in January.

“A.B. 5 has been so energizing and has given a lot of us tremendous hope,” Desai said. “Particularly companies like Uber and Lyft … lobbied hard to have themselves be exempt from [taxi] industry regulation. What we’re saying is they should not be similarly carved out of labor law.”

There are similar efforts underway in Washington state. And in New Jersey, where there is already a broad independent contractor law on the books, activists are anticipating gig workers and labor unions will bring more lawsuits to test whether the law is being properly enforced.

For years, labor activists have been raising concerns that gig economy companies have been allowed to flout decades of carefully honed labor laws by classifying workers as independent contractors. Now that argument is gaining steam amid a larger “techlash” by the public, concerned that the country’s most important technology companies have too much power over the way we live.

“The interesting thing about the gig economy is that it brings together so many stakeholders,” Rosenblat said. “The battle over Uber ends up becoming this framing device for a wide variety of battles.” Laws that take on how to classify workers will affect those in a broad range of industries — including truck drivers, nail salon workers, janitorial staff and more.

Jacobs said the efforts do not have to kill companies like Uber and Lyft, but they’ll likely have to reorient their business models over the next few years.

“Where there are businesses that cannot operate and meet any kind of minimum labor standards, then they will not continue,” he said.

“They’re going to have to change the way they do business,” Jacobs said. “Ultimately, the gig is up.”

Updated 2:53 P.M.