Regulation

New California Bill Says Uber's Drivers Are Employees. Uber Disagrees.

The bill would upend the gig economy.

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In a move that labor activists and liberal legislators hailed as a win for the little guy, California's AB5, which is poised to classify gig economy workers as fully-fledged employees, passed the state Senate on Wednesday. But Uber—the main target of the legislation—said in a statement that its drivers perform work "outside the usual course" of the company's business and will thus remain independent contractors.

Under the proposed law, reclassifying gig economy workers would entitle them to wage protections and a full slate of benefits, including health care, paid time off, and reimbursement for expenses. Yet Uber claims the law does not actually affect the drivers who use the company's app to give rides. "AB5 does not provide drivers with benefits, nor does it give drivers the right to organize. In fact, the bill currently says nothing about rideshare drivers," Tony West, Chief Legal Officer at Uber, wrote in a statement. "What AB5 does do is fairly straightforward: it inserts into the California labor code a new legal test that must be used when determining whether a worker is classified as an independent contractor or an employee."

That standard was established in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, a 2018 California Supreme Court decision that created the "ABC test" for ascertaining employee versus contractor status. To prove that their workers are contractors and not employees, companies must show that those workers control their workload, perform work that falls outside of the business's normal scope, and are "customarily engaged" in the occupation or business.

The second requirement is arguably the hardest box to check. "But just because the test is hard does not mean we will not be able to pass it," West said. "In fact, several previous rulings have found that drivers' work is outside the usual course of Uber's business, which is serving as a technology platform for several different types of digital marketplaces."

That claim will almost certainly be challenged in court—something West also acknowledged. The company is willing to negotiate, however, offering drivers a $21 minimum hourly wage when they are driving a passenger or are en route to pick up a new client. California legislators rejected that compromise.

"California has a long history of Wall Street billionaires pumping a fortune into ballot measures to further erode the middle class for their benefit," Assemblywoman Lorena Gonzalez (D–San Diego), who authored the bill, said in a statement. But as The New York Times reports, many of those beneficiaries have lobbied against the bill, citing their desire to continue working a flexible schedule.

If drivers found themselves classified as employees, gig economy companies would need to schedule workers in shifts, limiting employee hours and removing the autonomy that has come to define app-based professions. They would also have to eliminate scores of positions in order to remain financially solvent. About 6,461 Lyft drivers in Gonzalez's district alone would find themselves without work, according to a study prepared by the consulting firm Beacon Economics LLC for the ride-hailing company.

That's a big change for a business model that, in its current state, allows workers to simultaneously contract for competing companies and is available to large swaths of eager workers. Uber's door is currently wide open, so long as you are 21, have a driver's license, and own a decent car. That accessibility has been a game-changer for vulnerable populations. In Manhattan, first-generation immigrants who speak English as a second language make up 90 percent of app-based drivers.

But such a model would be untenable under AB5, as labor costs would explode overnight. Consumers would pay the price, too: Experts approximate that prices would increase 20 to 30 percent.

The provisions of AB5 would affect countless other industries. Newspapers, for instance, will no longer be permitted to classify freelance writers as contractors if they write more than 35 articles in a year for the same publication. With newspapers large and small struggling to survive and many prestigious outlets shuttering altogether, it's possible that publications will be forced to limit their regular freelancers rather than turn more freelancers into staff writers.

The bill will now head to Democratic Governor Gavin Newsom's desk, who has promised to sign it. But he told The Wall Street Journal that he's still willing to hear out opposing concerns from gig economy companies.

"These remain ongoing negotiations," he said, "and regardless of what happens with AB5, I am committed, at least, to continuing those negotiations."

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  1. Don’t worry, when tons of these drivers no longer have a job they have a safety net. Blame the faceless ‘billionaires’ they just blamed for not paying them enough.

    That will begin the next round of making sure these companies leave California entirely. With a hefty exit tax, of course.

    That’s basically the end point of all this, after all. It seems they should just skip to the finish line and ban these companies from existing.

    Oh well, California gets what it want’s good and hard. Film at 11.

  2. So… Uber simply limits the number of hours that a driver can be logged in?

  3. Under the proposed law, reclassifying gig economy workers would entitle them to wage protections and a full slate of benefits, including health care, paid time off, and reimbursement for expenses.

    If drivers found themselves classified as employees, gig economy companies would need to schedule workers in shifts, limiting employee hours and removing the autonomy that has come to define app-based professions. They would also have to eliminate scores of positions in order to remain financially solvent. About 6,461 Lyft drivers in Gonzalez’s district alone would find themselves without work, according to a study prepared by the consulting firm Beacon Economics LLC for the ride-hailing company.

    But the first is what benevolent government does to show their caring and compassionate nature, the second is what those evil corporations do to demonstrate their greed and cruelty. The one has nothing to do with the other as far as government is concerned. Their intentions are good and unintended consequences are not their problem.

    1. This is what really pisses me off – this assumption that these people are ignorant and that if you could just explain to them the entirely predictable – in fact, necessary – consequences of their proposals they might change their minds is predicated on the belief that these people truly do want to help people. I don’t believe this is true, these people aren’t ignorant, they’re evil and they just don’t give a shit if people get hurt as long as it helps them personally. And I’m angry that these people have made me cynical enough to hate humanity in this way.

      1. I don’t hate humanity, but I do hate what these pols are proposing, and their pretence of “good intentions” which seems to be a perpetual, iron-clad excuse for any awful policy imaginable.

  4. No mention of Unions? They are the big group behind this.

  5. I really, really wish Uber would just stop business in CA until new politicians were voted in.
    Cost to Uber, lost profits, if profit can be made at the prices they would have to charge. Cost to CA, lost payroll taxes, lost union ‘contributions’, loss of face, and maybe, just maybe, another voter rebellion.
    Maybe a bunch of ex-Uber drivers will sue CA for costing them their job, claiming racist bias in the law?

    1. Here’s an example of what it takes a racist to consider racial bias, he can’t be a slaver.

    2. There is no lost profit Uber loses a billion per quarter. Their investors might applaud the move

  6. I guess this is a bit of a conspiracy theory, but I really think that the progressive leaders are rather scared of a more decentralized economy. As it stands, with a smaller number of gigantic corporations hiring a larger and larger number of people, they can do their little long march through the institutions and use it as an extralegal bludgeon to force people to bow to their viewpoints. A decentralized system* where people directly transact with each other and ply their trades without the need for giant institutions is not really amenable to this type of subversion.

    * I know Uber is itself a large institution, but it is really just matching buyers and sellers. It’s conceivable that such a process can in the future be done in a genuinely decentralized way.

    1. Of course this is the case. This is why all Democrat policy drives market consolidation. If they didn’t consolidate markets, they would be harder to nationalize.

      Not to say that Republican legislation doesn’t also do this, it’s just that it’s more of a meander instead of a goosestep.

      1. No, Democrats consolidate markets because it helps the huge corporate donors who nearly all fund Dems. They are much bigger friends of corporate cronyism than Republicans ever were.

    2. As it stands, with a smaller number of gigantic corporations hiring a larger and larger number of people, they can do their little long march through the institutions and use it as an extralegal bludgeon to force people to bow to their viewpoints.

      I think there’s truth to that, but this is driven by the fact that they see what they are doing as good.

      I have worked for and with very, very small contractors and very, very large ones.

      Small contractors are the ones working people six or seven days a week, ten hours a day with no overtime pay, no worker safety, and a “buy your own damn tools” mentality.

      Big contractors like your Bechtels and your Halliburtons can’t get away with that shit. They can be watched very closely and they will get caught.

      I think to the Progressive mindset, a truly decentralized economy is scary because there’s all kinds of potential for exploitation that isn’t really there with mega-corporations.

      It’s conceivable that such a process can in the future be done in a genuinely decentralized way.

      And I think this legislation will actually tip things in that direction. I’ve been following this thing with Uber for a while, and there are ways in which Uber is both pretending to be “just matching buyers and sellers” and acting like a full-blown employer.

      At some point, someone will design an app that just hooks up people who need rides with people offering them, without a formally organized corporation selling stocks around it. Then it will be “Game Over” for the centralizers.

  7. “If drivers found themselves classified as employees, gig economy companies would need to schedule workers in shifts, limiting employee hours and removing the autonomy that has come to define app-based professions. They would also have to eliminate scores of positions in order to remain financially solvent. ”

    Not gonna happen in a socialist workers’ paradise. The only fair job places no demands or inconveniences, but provides unlimited rewards–and guaranteed “work” for whoever wants some. If necessary, the Cali government will just take over all transportation and make drivers into state employees.

    1. I wouldn’t care, but the worse California becomes, the more lefty idiots move to Colorado.

  8. Mr. Binion writes: “The bill will now head to Democratic Governor Gavin Newsom’s desk, who has promised to sign it.” I didn’t realize that desks could sign things. I didn’t even know a desk was a “who”.
    Not the best writing, and even worse editing (if there was any).

    1. Yeah – should be a “which.”

  9. Was anyone else following this recent “Youtubers’ Union”? It’s tangentially related to the employee/not employee arguments.

  10. On an unrelated note:

    If you’ve watched a movie or a TV show recently, you know they all have 5 or 6 production companies listed in the credits now and these are all shell companies expressly created for the purpose of diverting profits for tax purposes. When you see that so-and-so is being paid $1 million per episode, it’s a good bet that’s he’s not getting paid that, his production company is getting paid that and his salary as reported to the IRS is some much smaller amount.

    My question is, do professional athletes do the same thing? When you read that Tom Brady signed a contract extension for $20 million per year, did they actually sign a deal with Tom Brady, or did they sign a deal with, say, Tom Brady Enterprises for their employee’s (Tom Brady) services? Income to Tom Brady Enterprises could be re-invested tax-deferred in a way that Tom Brady’s personal income could not, right?

    If Tom Brady is not in fact an employee of Tom Brady Enterprises for tax purposes I would think he should be and none of you bastards better steal my idea. Unless the IRS already barred this tax dodge a hundred years ago when Babe Ruth’s accountant figured out the same thing.

    1. Athletes are paid employees of the teams. Normally non-resident players are taxed based on the days they work in state vs out of state. States generally claim you as a resident if you spend the majority of the year in state.

      Capitol Journal: Bryce Harper will save tens of millions in taxes by spurning the Dodgers and Giants

      California’s so-called jock tax for pro athletes can be complicated. Basically, a ballplayer is taxed for the amount of time he’s in the state.

      If he’s an all-year California resident it’s fairly simple: His contract is taxed at the state rate.

      But if he’s a non-resident, he gets taxed based on what the state calls “duty days.”

      A non-resident lives elsewhere in the off season. And his wife and kids do all year. That’s Harper. He was raised and lives in Las Vegas. That’s the big reason the Dodgers thought they could lure him. Sorry, not enough millions.

      A non-resident is taxed at the California rate for the 81 regular season home games. For the 81 away games, he’s taxed by the host team’s state. But that puts a California player in the National League West at a significant tax disadvantage because there are three division teams in this state: the Dodgers, Giants and Padres. The Dodgers will play 20 away games this season in California and the players will feel its tax bite.

      Players for out-of-state teams also get taxed at the California rate when they play in our stadiums.

      There’s a softer tax hit in the American League West. That’s because all division rivals for the Los Angeles Angels and the Oakland Athletics are in no-tax states: Seattle Mariners, Houston Astros and Texas Rangers.

      “There’s a significant boost to players’ earnings being in the A.L. West vs. the N.L. West,” Boras says.

      1. Well, I remember when California advanced their theory of airspace such that the DirecTv satellite parked over California was subject to California’s tax laws, so it doesn’t surprise me. But I’d still like to know why professional athletes don’t do like other big-money earners and set up some sort of tax sheltering legal entity that actually receives their income rather than receiving it as straight income. Or maybe that’s something that benefits the team owner such that the cost is built into the price of the contract. If your payment scheme costs the team owner a half-million in lost expense write-offs, that’s a half-million less he’s going to be willing to offer to pay you.

  11. What do the Uber drivers think?

    1. Same as any group of workers contemplating joining a union – the good ones are against it and the bad ones are for it. If you’re making plenty of money and are happy with your job, why do you want some middleman sticking his nose in your business and screwing up the nice arrangement you got going? If you’re a bad worker and figure you can do better by having somebody force your boss to give you something you can’t earn on your own, why not go for it?

    2. I’m quite sure the progressives running California don’t care.

    3. The ones who are my clients are all against it. Right now they get to choose their hours and locations, and to be on-call for both Uber and Lyft at the same time. Make them employees and all those choices go away. And their prices will have to go up so much that many customers will switch back to traditional cabs or curtail their riding.

      The voters will not put up with this law once they’ve seen its effects.

  12. Why do I have a feeling this is perhaps the worst attempt to get Uber et al. drivers off the unemployment dole? Think about it, if you’ve got a gig that only lasts tonight it’s not a steady job so tomorrow UI is cool. On the other hand if you’re gainfully employed by the likes of Uber, it’s a different story.

    1. All earnings have to be reported to unemployment, which reduces the unemployment benefits.

  13. I would like to join or start an initiative campaign to overturn this stupid law. Millions of people ride Uber and Lyft, and once they see the higher prices and worse service it brings them they’ll vote to go back to the old way.

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