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This California bill could force Uber and Lyft to treat their workers better

If passed, it could change gig worker status from contractor to employee.

This California bill could force Uber and Lyft to treat their workers better
[Photo: Michael Short/Bloomberg/Getty Images]

California’s Senate is in the process of amending a proposal for a bill that could answer the question of whether gig economy workers are contractors or employees. The bill would codify California’s Supreme Court decision on Dynamex Operations West, Inc. v. Superior Court of Los Angeles, which determined that workers were only able to be considered contractors if they met the following criteria:

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  1. 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.
  2. The person performs work that is outside the usual course of the hiring entity’s business.
  3. The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

It’s called the “ABC test,” and there is some version of it in several states.

Last week, California’s state assembly passed its version of this bill, AB5, that puts hard limits on what type of worker qualifies as a contractor. The state assembly decided the rule would not apply to insurance agents, investment advisors, direct salespeople, realtors, certain healthcare professionals, barbers, hairstylists, and anyone working under a professional services contract. Gig economy companies–Uber, Lyft, Handy, DoorDash, and so on—will be lobbying hard to remove their workers from the bill’s scrutiny. Members of the Senate will want to add their own exemptions, though the details are still being worked out. The California Senate is expected to vote on the bill in August or early September.

How will this impact gig economy companies if it passes? It could potentially help regulators in the state enforce worker classification standards. If companies offer employees benefits, gig economy workers could be entitled to them. And it could also standardize wages for workers—a hotly contested issue. Gig workers have been been making a lot of noise recently about their dissatisfaction with the labor system companies like Uber and Lyft have created. Last month, Uber and Lyft drivers in 14 countries went on strike, largely over declining pay rates.

There are already small examples where such regulation has made a ripple in the gig economy business model. In Massachusetts, for example, a small segment of drivers that work for Grubhub are employees because of the state’s own ABC-test legislation. The California bill, if it makes it through, would expand that rule to a much bigger state and one where many of these gig economy companies reside.

Most gig economy workers do not meet the ABC stipulations. Workers for platforms like Uber, Lyft, Handy, Postmates, Grubhub, and DoorDash do not set their own wages, are not free to conduct business on their own terms, and are not engaged in an independently established trade. For example, Uber and Lyft set non-negotiable wages for workers based on demand. These platforms also have have standards workers must meet to get access to riders. Furthermore, it’s arguable gig workers do jobs that are within “the usual course of business” for the platforms, because without their work there would be no platform.

However, gig companies contend that because workers can work whenever they want to, they are contractors. Making contractors employees might also threaten their business models.

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Though the California bill, as law, could clarify the relationship between gig platforms and their workers, it will also introduce some questions. If gig companies were to concede and make their drivers employees, the companies and the state would have to figure out how to set earnings for these workers, which isn’t a clear-cut task. “One of the things lurking in the background here is, how many hours do these people actually work?” says Stephen Zoepf, the executive director at the Center for Automotive Research at Stanford University.

App-based companies would have to figure out how to quantify and standardize worker hours and pay structures. Gig economy companies like Uber, Lyft, Postmates, and Grubhub use dynamic pricing to pay their drivers and push out incentives when demand is high to keep a steady supply of drivers active. There is some precedent, though, for how this could be done. Last year, New York City’s Taxi and Limousine Commission passed a set of rules that guarantee drivers a minimum wage of $17.22 per hour while they’re driving. The rules went into effect in February and will be watched by regulators considering similar measures.

Another possible effect of a bill like the one under consideration in California might be a limit on a drivers’ ability to app-hop or work for multiple companies at the same time. Currently, because they’re contractors, drivers are free to work for other apps at the same time. If drivers become full-time employees of a company, they may be restricted to driving for a single app, but ideally, the law would enable them to earn a more reliable wage.

Zoepf notes that gig economy companies, which have the capability to bring on and evaporate a workforce based on demand, are unlike any business model that’s ever existed before. “There’s lots of experimentation early on in any new business and many of those experiments fail,” he says. “I think as the regulatory landscape changes, what we’ll see is more experimentation with business models.”

Of course, the bill may not pass in the Senate, and gig economy companies in California would then be able to keep on with their existing structure. Still, Steve Smith, communications director for the California Labor Federation, is hopeful. He says that certain typically pro-business government Senate committees are not advocating to kill this bill. “The Chamber of Commerce, which we expected at the outset would be the biggest opposition, has not actually opposed the bill,” says Smith.

But, he says, the bill is just the first step in reforming gig economy companies. There are other hurdles to cross for the California bill to be truly effective. Gig economy companies have historically been very effective at preventing worker concerns from reaching the public through mandatory private adjudication. “The use of forced arbitration has really blunted efforts to enforce the law,” says Smith. Several worker disputes that have reached state supreme courts have been defeated because of arbitration clauses. Smith’s organization is backing another bill, AB51, that would address the use of forced arbitration in labor disputes.

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“We hope that regardless of what happens to our bill in California the campaign on against forced arbitration continues, because if you have a good law but you’re not able to enforce it, it’s not really helping workers—at least not as well as it should,” he says.

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About the author

Ruth Reader is a writer for Fast Company. She covers the intersection of real estate, technology, and the future of work.

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