The US state may have just given employee status to millions of gig economy workers.
On September 18th California Governor Gavin Newson signed Assembly Bill 5 after a year long review. In doing so he may have given employee status to millions of the state’s gig economy workers – described as ‘independent contractors’.
But it is not just workers engaged by companies such as Uber and Lyft, other workers described as ‘independent contractors’ in a wide range of industries who will benefit from the decision.
In the teeth of opposition from employers who use ‘independent contractors’ – workers who are deemed to be ‘self employed’ from January 1st 2020 will be entitled to health benefits, minimum wages and paid holidays.
Newson has signed into law a judgement from the California’s supreme court in 2018 that created a new set of ‘tests’ for whether a worker should be considered an actual employee and took a step to stop companies eroding workers’ basic employment rights.
The common assumption is that ‘independent contractors’ mainly work for gig economy companies such as Uber, Lyft, or DoorDash, a food delivery company. That’s is now far from the case. Many well known US and multi national corporations and tech companies use ‘independent contractors’. Google for instance has more contractors in California than employees.
Despite the positive news it is not clear how AB5 will be implemented. Newsom told the Wall Street Journal that he “planned to continue negotiating with companies hoping to be exempted from the bill.”
US Democratic presidential candidates Elizabeth Warren, Bernie Sanders and Kamala Harris are vocally supporting AB5.
AB5 has its foundations in a 2018 court ruling when the California Supreme Court adopted the ‘ABC test’ in Dynamex Operations West, Inc. v. Superior Court which waslimited to state Wage Orders, leaving room for interpretation about its applicability to other claims, including statutory claims under the Fair Employment and Housing Act (the FEHA).
But AB5, takes things much further. The new laws set to come into effect on January 1st, next year solidify the ABC test to all aspects of employment; expand its reach making it potentially applicable in supply chains and business to business relationships, and grants exemptions to only a limited number of industries.
The ABC test is still complex and open to challenge and ‘mis-classifation’. An ‘independent contractor’ is deemed to be an employee under the law unless the ‘hiring entity’ – not the contractor – can establish each of the following:
A) The person concerned is free from the control and direction of the ‘hiring entity’ in connection with the performance of the work, both under contract and in fact.
B) The person performs work that is outside the usual course of the hiring entity’s business
C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
As one consultant’s briefing put it: “The 800lb gorilla in the room” is B ‘test’ – whether the contractor is performing work outside the retaining entity’s “usual course of business” which shifts the analysis from one cantered on control to an analysis that purports to measure how closely the contractor’s work relates to the hiring entity’s business is new.
There are further complications. In the US gig economy some companies link independent contractors to their customers, taking slice of the action in the form of a fee in exchange for making the connection.
Also its is anticipated that that a wide range of workers including those in the music and film industries, trucking and an array of IT workers will be covered in AB5, so it is anticipated that there will be intense lobbying, legal challenges and appeals for exemptions.
What spooks employers so much is that in the past California has lead the way in introducing pro-worker legislation that is a blueprint for elsewhere in the US.
That is why companies such as Lyft say they have set aside $90 million to lobby against AB5. In a statement they said: “We are fully prepared to take this issue to the voters of California to preserve the freedom and access drivers and riders want and need. What was once governed by a balancing test that provided breathing room for businesses to deploy contractors with relative ease has now been transformed into a bright-line standard that will challenge businesses across the state when it comes to compliance.
“Companies will soon face an increased risk of misclassification claims from workers unless they take immediate steps to get in line with the new law”.
Joseph Rajkovacz, director of governmental affairs for the Western States Trucking Association, which represents truck drivers, many of whom are temporary, freelance, and independent contractors said: “People ought to be very concerned because what happens here does tend to get copied in other states,”
US unions are still cautious as Trump’s National Labour Relations Board recently decided that gig workers were ‘independent contractors’ and therefore they do not have a right to organise into unions.
Reading the small print and briefings being given by consultants and others on AB5 is daunting. As the global union for transport workers the ITF said: “We want an international governance framework for gig economy workers that can help put an end to the scourge of mis-classification. California can be a source of inspiration.”
Tony Burke is Assistant General Secretary at Unite the Union
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