A new California law has thrown the state’s contract workers into uncertainty. Journalists, truck drivers, musicians and all ride share drivers are among those who must reassess who they work for — if they still have jobs at all.
California’s turmoil could be a harbinger of what could happen across the United States as other states are considering similar legislation impacting contract workers. The new law places caps on how much work California contractors can complete for employers before they’re required to be designated as “employees.” Following protests from Uber and Lyft drivers last year, legislators said the intention of the law is to prevent workers from being exploited through a lack of compensation and benefits.
With hundreds of contract jobs already terminated, lawsuits filed on both sides, and a retaliatory ballot measure funded by contract work-reliant companies set for November 2020, lawmakers behind the bill hint they’re open to reconsidering to whom the law applies. They have yet to significantly update Assembly Bill 5 (AB5) only announcing intent to “further clarify” its reach.
The bill was born out of 2018’s Dynamex Operations West, Inc. v. Superior Court case, which ruled California employers must adhere to the “ABC test” when determining whether workers are contractors or full-time employees, the latter of whom are legally entitled to benefits. These include a minimum wage, sick leave, worker’s compensation and unemployment benefits.
It is the responsibility of employers to correctly classify their workers. Under the contractor law, California employers can pay penalties up to $25,000 per misclassification, in addition to any back pay or benefits owed to employees.
Tech companies versus lawmakers and protesters
The most vocal opponents of the new law are companies like Uber, Lyft and Postmates, the majority of whose laborers are contracted workers. The law’s author, San Diego Assemblywoman Lorena Gonzalez, introduced the bill following nationwide protests from ride share drivers over low pay and benefits commensurate with hours worked.
Uber and other tech companies initially denied they would be in violation of the law. Uber has since reversed that messaging, announcing changes made in an effort to fully comply with AB5.
However, even as these companies reorganize their business models to comply with the law, they are fighting it. Last year, Uber, Postmates and one driver from each company jointly filed a federal lawsuit in Los Angeles against the state and state Attorney General Xavier Becerra which asserts that AB5 is unconstitutional. Collectively, Uber, Lyft, DoorDash, Postmates and Instacart have also dedicated $110 million in support of a 2020 ballot measure aimed at their exemption from the law.
Gig Workers Rising, an activist group in support of the contractor law, offered the following comment: “It is unsurprising that billion-dollar corporations are attempting to buy their way out of the democratic process, undermine the Supreme Court’s Dynamex ruling and continue to protect profit instead of giving drivers the benefits, rights and pay they deserve. Drivers also recognize that while AB5 is a good first step, they must continue to organize so that they can successfully demand the compensation, rights and benefits they are due.”
Providing all eligible workers with full benefits would raise labor costs by 30 percent for business owners according to the L.A. Times. Filed with the state last October, the tech companies’ ballot initiative aimed at preventing them from having to pay these increased costs is being supported through their Protect App-Based Drivers & Services campaign.
Converting contractors to employees would also shift the burden of paying payroll tax away from more workers and onto employers. In general, the IRS says employers misclassifying employees as contractors significantly contributes to the $16 billion that the federal government loses every year to payroll tax fraud.
Freelance writers and other media workers
After months of backlash from freelancers working in media, the American Society of Journalists and Authors (ASJA) and the National Press Photographers Association filed a joint lawsuit against the state in its Central District court on Dec. 17, 2019.
Whereas there was previously no limit, freelance writers and photographers can now only file a maximum of 35 “content submissions” for a single client per year before being considered a full-fledged employee. The ASJA claimed this aspect of the law unconstitutionally singles out freelance writers.
On January 6, Assemblywoman Gonzalez introduced AB-1850, a placeholder bill declaring the state legislature’s intent to reassess and possibly update the list of the contractor law's exempt professions. The bill reads, “It is the intent of the Legislature to enact legislation that would further clarify the application of the California Supreme Court’s decision in Dynamex Operations West v. Superior Court (2018) 4 Cal. 5th 903 and requirements under Section 2750.3 of the Labor Code.”
“We understand that Assemblywoman Gonzalez is open to revising the law in regard to freelance journalists,” past ASJA president Randy Dotinga told LiveCareer. Dotinga did not address whether the group has spoken directly with lawmakers since AB5 took effect, nor if the announcement of AB-1850 was a reaction to their lawsuit, specifically.
Vox Media voiced support for the law's passage as a “victory for workers everywhere” before terminating the contracts of hundreds of freelance writers, most of whom worked for their sports-focused site, SB Nation. The company says this new labor gap will be filled by 20 new full- and part-time positions, some of which have already been posted online. Outlets like Forbes have openly denounced the law, while media groups like Bustle and Medium say they embrace it.
The Recording Academy and Recording Industry Association of America also say the contractor law makes work more difficult for musicians, engineers, producers, publicists and more, many of whom are rarely considered full-time employees.
“Unless there is an exemption for the music industry, it will make every studio engineer employees for whoever is hiring them,” American Association of Independent Music president and CEO Richard James Burgess told Billboard. “On a practical level, I don’t see how it can work.” Assemblywoman Gonzalez told the outlet she has met with executives and stakeholders to better understand how the law affects the music industry.
On January 7, a San Diego judge granted a temporary restraining order exempting California truck drivers from the law. The California Trucking Association had filed a lawsuit in November in hopes of establishing a permanent version of said exemption.
Dynamex Operations West, Inc. v. Superior Court, which in 2018 helped codify the ABC test as law in California, specifically addressed the working conditions of the state’s truck drivers. In 2004, the company switched from classifying all drivers as employees to utilizing only independent contractors.The lawsuit, which was filed by two former drivers, claimed they were misclassified by Dynamex as contractors instead of employees.
Roughly 70,000 drivers were represented in the California Trucking Association’s suit last November. It argued many truck drivers had already opted to transition to independent contracting before being forced to return to traditional employment after failing to pass the newly implemented ABC test. The drivers said being able to determine their own working hours and profit from using their own vehicles means they should indeed pass the test.
The contractor law affects these California workers less
Among those currently exempt from the new law are dentists, doctors, insurance agents, travel agents, commercial fishermen, stockbrokers, lawyers, manicurists, engineers, accountants and psychologists. According to the Dordulian Law Group, what “tended to separate these exempt professions from others” was “whether or not the workers had the wherewithal to set or negotiate their own rates,” “whether they had access to direct communication with customers,” and “whether they earned at least twice the minimum wage.”
California workers and job seekers curious to know how the contractor law applies to their careers can visit the Employment Status Portal, created by the the California Labor and Workforce Development Agency.
Other states are following California’s lead
Last year, lawmakers in New York expressed interest in officially introducing similar legislation, with Gov. Cuomo saying he too wants to follow California’s lead. The official introduction of a bill is expected sometime in early 2020.
Illinois lawmakers are considering similar legislation as part of a larger effort to raise the state’s minimum wage to $15 by 2025. Chicago Rep. Will Guzzardi said that since ride share drivers earn between $9 and $12 per hour, the new laws should protect them as well.
Wisconsin Gov. Tony Evers’ Joint Task Force on Payroll Fraud and Worker Misclassification says it plans to make its own policy recommendation regarding gig workers in February. State representatives in Oregon and Washington actively pursued “ABC test” legislation in 2019, though none were successful.
Oregon and Washington
Though no laws have been proposed at the federal level, it has been a point of discussion among 2020 Democratic presidential candidates. Sen. Bernie Sanders, Sen. Elizabeth Warren and Mayor Pete Buttigieg have all expressed support for AB5 at some point during their respective campaigns.