California recently passed Assembly Bill 5: a bill designed to reduce companies’ abilities to take advantage of contract workers. The bill was written in response to the growing number of independent workers making their money from the gig economy, including Lyft and Uber drivers.
Since it’s conception, AB 5 has caused controversy. Companies see it as a risk to their profit margins, some independent contractors demand basic benefits, and some independent contractors fear for their livelihoods. The bill excludes some professions, including doctors and psychiatrists due to their generally high incomes, and targets employers who are failing to provide those working for them with the basic necessities for living in California. It requires that employers who hire contractors for the amount of work an employee should be doing to hire them as employees.
By transitioning contract workers into employees, employers would have to provide more substantial wages, protections, and benefits. This would increase the cost of labor for many employers, leading to Uber and Lyft spending over $100 million to get a ballot measure on the 2020 ballot to oppose the bill. The rideshare companies are worried, and rightfully so, that the new law requiring them to recognize all of their drivers as employees will severely lower profits. The companies say that the new measures will force them to implement driver schedules, raise rates, and reduce the freedom of their drivers.
This is true. What’s also true is that contract workers are often taken advantage of, with employers going with the cheaper worker rather than hiring an employee and the benefits that go along with it.
The problem arises when companies now see out-of-state freelance workers as a cheaper alternative to California freelancers. This largely affects industries including construction, writing, and graphic design. Independent contractors are already feeling the pressure from the new restrictions and companies are unwilling to hire them. This is more a reflection of employers’ unwillingness to provide their workers with sufficient contracts than workers demanding too high of benefits or legislators trying to punish employers.
AB 5 won’t go into effect until January 1st, 2020. Until then we won’t know it’s full effect and how companies will respond to the new laws.