Is your Uber driver a contractor or employee? What about the person delivering your favorite meal through DoorDash? California legislators passed a bill, called AB 5, on September 11 requiring employers that utilize contract workers to perform ‘gig’ type work, to change the status from contractor to employee. Governor Gavin Newsom has not signed the bill, though it is expected he will after current negotiations are resolved. Primarily this includes ride-hail drivers (like Uber and Lyft) and delivery couriers (like DoorDash) but could become more far-reaching. Other possible occupations include nail salon workers, janitors, construction workers, home repair, and telemarketers. Some exemptions* in California already exist.
Contractor or employee – ABC guidelines
There are ABC guidelines that establish the classification of an independent contractor. These workers would not be considered employees:
(A) free from the control and direction of the hiring entity – in fact as well as by contract;
(B) the work performed by the person is outside the usual course of the hiring entity’s business; and
(C) the person hired is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
This definition of an independent contractor does not generally fit ride-hail and delivery drivers.
Worker benefits
Currently California contract workers do not receive employee benefits such as vacation time, paid sick days, overtime, and reimbursement of expenses. As employees, they would receive these plus the ability to unionize and eligibility for unemployment insurance and workers’ compensation. They would have the security they currently lack.
Employer objections to AB 5
Some employers, such as Uber, have proposed similar benefits without the classification as employees. They stress the flexibility workers currently have that they may lose as employees. Some small, often family businesses such as vineyards, or auto shops, are fearful of the effect it could have on their businesses.
The larger companies, such as Uber, threaten that this law can lead to eliminating many drivers – especially those in low traffic areas that would not justify the benefits of an employee. They also suggest schedules might need to be initiated, ridding drivers of the flexibility they desire. Experts, however, say the bill does not require set shifts, with Uber and Lyft entitled to continue letting drivers make their own schedule decisions. In fact, it would be strategic to use incentives, such as bonuses, to ensure there are sufficient available drivers at certain times and in certain places.
Current status
- In last minute ammendments, California legislators gave larger cities the right to sue if companies don’t comply.
- Uber, Lyft, and DoorDash pledged $90 million to support a ballot initiative that exempts them from the new law.
- Though most drivers support the bill, many oppose it from fear it will limit their flexible schedules.
- In July and August, Uber and Lyft worked on an agreement between labor groups and the governor’s office to establish a new category between contractor and employee while giving a minimum wage and the right to organize. The negotiations disintegrated, but company officials are optimistic a deal can be negotiated after the bill is passed.
Beyond California
New York, Alaska, and Oregon – and almost half the states – already determined ride-hailing drivers were employees under current state laws for specific purposes. However, these findings could be overturned by new state laws clearly identifying drivers as contractors.
There are still hurdles to make this a law across the country. For now, California with AB 5 is setting the standard, and it will be an example to other states as they deal with this massive change in the current working environment of millions of workers in California alone.
When this bill becomes law, we anticipate a law that gives security, benefits, and confidence to all contract workers in California.
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Exemptions
Specific categories of workers:
Includes (i) individuals licensed by the Department of Insurance; (ii) real estate licensees; (iii) physicians, surgeons, dentists, podiatrists, psychologists and veterinarians licensed by the State; (iv) licensed lawyers, architects, engineers, private investigators and accountants; (v) securities broker-dealers and investment advisors and their agents/representatives registered with the SEC or FIRA or licensed by the State; (vi) direct salespersons who otherwise meet Unemployment Code conditions; and (vii) certain commercial fishermen.
Six-part test for exemption in the fields of graphic design, marketing, writing, editing, freelance photography, and human resources:
- Maintain a separate business location (which can be their home);
- Have a business license in addition to any required professional licenses;
- Have the ability to set or negotiate their own rates;
- Set their own hours (other than project deadlines);
- Customarily engage in the same kind of work with another entity or holds themselves out to other potential customers for the same kind of work; and
- Customarily and regularly exercises discretion and independent judgment in the work.
