This year’s most important bill for the future of work passed in California in September, and we should all take note. The law — Assembly Bill 5 — sets a new definition for what it means to be an employee, and it is the most direct legislative affront to the so-called “gig economy” yet. AB5 sends the right message, but it now seems too late. The gig economy and the companies that have made it are too far and too powerful.

The timing of this bill is significant because the gig economy — where independent workers are paid by the individual job instead of a wage or salary — is growing quickly. By 2027, according to one model, approximately 50 percent of workers in the United States will not be tied to a specific employer. Instead, they will do some freelance or gig work. It is a dangerous trend. It signifies the end of a work culture in which employees rely on their employers for social insurance. 

The gig economy has grown because employment has become more of a burden and finding quick work has become easier. It has led companies to do everything in their power to classify their workers as independent contractors and not full employees. For their employees, employers have to provide unemployment and health insurance, pay for parental leave and overtime, abide by minimum wage laws and grant the right to form a union.  For independent contractors, employers are off the hook for all of it. 

Specifically, AB5 clearly lays out the criteria for classifying a worker as an independent contractor, in contrast to the vague federal law under which most states operate. AB5 says that independent contractors are those who are not under company control, whose work is not the core part of the company’s business and that has an independent business in the industry.

This law will have enormous consequences for gig workers across the state and their employers, but most saliently for Uber and Lyft. Under AB5, drivers will get all the employee benefits they have missed as independent contractors. The National Employment Law Project estimates that it is 30 percent cheaper for employers to hire someone as an independent contractor than as an employee, a potentially crippling blow for companies that are already running deficits.

But they will not go down without a fight. Uber and Lyft are up in arms over AB5 because it has the potential to reverberate around the country. The rival companies recently united to pour $90 million into a lobbying campaign to fight the bill and its implementation – and their efforts underscore how they cannot be trusted to give fair deals to their drivers.

Their campaign has three parts. The first is the standard libertarian messaging that government regulation is limiting business. They are not wrong. Uber and Lyft will suffer as companies, drivers may not have as much flexibility and wait times and ride fares will likely rise. However, tech companies that rely on the gig economy should see AB5 as a challenge that needs to be faced. If forcing the companies to comply with standard labor law is a gut punch, Uber and Lyft’s business model needs to become more resilient. 

The second part of the campaign has been to try and mobilize drivers against AB5. But this effort has been full of deceit and intimidation. In early June, drivers were asked to sign petitions to support flexible hours without realizing they were fighting against employee classification. Some drivers were also under the impression that signing the petition was mandatory, including drivers for whom English is a second language.

The tech companies’ negotiating tactics show how necessary confrontational organizing is.  Drivers have been protesting how the companies take excessive portions of fares for years, but Uber and Lyft did nothing because their independent contractors did not have the capacity to collectively organize. Only after AB5 picked up steam in the California legislature did Uber roll out a compromise plan, even though its concessions were weak. Uber and Lyft marketed the proposal as a $21 minimum wage, but since that wage only applies to drivers who are actively picking up or with passengers, drivers would still be making below California minimum wage. 

It is easy to frame AB5 as an unequivocal win. But under the law, Uber and Lyft can still make the working lives of their drivers terrible, and have suggested that they will. First, they have suggested that they will just ignore the new law. More likely and thus more concerning is what kind of retribution the companies will deliver to their drivers. The biggest question is what will happen to driver flexibility. Lots of Uber and Lyft drivers say that without the ability to choose their own hours, they would not work. This is especially true for drivers who work other jobs, quasi-retirees who will not commit to working different hours and students with irregular schedules. When AB5 comes into effect, Uber and Lyft say they may have to start setting hour minimums or preventing certain drivers from logging on in low-traffic areas. The bill’s supporters have countered that AB5 does compel Uber and Lyft to implement such restrictions. If they do, it would be by their own volition. 

There is a way to address the ambiguities of AB5 as well as Uber and Lyft’s public relations campaign against the bill that will send a clear message to the gig economy. Instead of mandating drivers have a different relationship with their employers, they should be able to choose whether to be classified as employees or independent contractors. The drivers putting in 50 hours in the car per week are employees who deserve the rights that label entails. But the drivers who are actually independent contractors could retain the flexibility they need. If the vast majority of drivers choose to be employees instead of independent contractors, it would send an unequivocal statement of opposition to the gig economy, one that Uber and Lyft cannot muddle. 

Solomon Medintz can be reached at smedintz@umich.edu.

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