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California AB 5: Candidates endorse controversial gig economy bill

California AB 5: Candidates endorse controversial gig economy bill


Presidential candidates are slowly starting to talk about the gig economy. Not in the vague way they express disdain for a business model that exploits workers. No, they’re starting to take sides, weighing in on one of the most consequential legislative battles taking place in the country — the fight over California bill AB 5.

The sweeping bill, backed by labor unions, would make it much harder for companies to classify employees as independent contractors, a common practice that has allowed businesses to skirt state and federal labor laws. The law would essentially rewrite the rules of the gig economy, and businesses of all kinds are panicking. lt’s why Uber, Lyft, Instacart, Postmates, and other well-known gig companies have launched aggressive lobbying and public relations campaigns to defeat the bill.

The bill passed the state assembly earlier this summer and is now held up in the Senate as business groups beg for exceptions and compromises. In the past few weeks, 2020 contenders have stepped into the fray.

First, it was Elizabeth Warren, who said in an op-ed earlier this month that “all Democrats need to stand up and say, without hedging, that we support AB 5 and back full employee status for gig workers.” Sen. Bernie Sanders, who has introduced a similar bill at the federal level, later gave his unequivocal endorsement. Then, last week, Kamala Harris’s campaign said she supported AB 5 too.

“She supports AB5. … And she believes we need to go even further to bolster worker protections and benefits and elevate the voice of workers,” a campaign spokesman told Vice News.

These endorsements are unusual — and not only because presidential candidates don’t normally weigh in on state legislation. They show just how far Democratic presidential candidates are willing to go to let voters (and workers) know whose side they are on. More so than any other policy plan they’ve come up with, their endorsement of AB 5 is the clearest signal yet that they are siding with workers and labor unions, not Silicon Valley gig companies and other businesses with lots of money to spend. Out of the top-four frontrunners, Joe Biden is the only one who has yet to weigh in, but the pressure is on.

The stakes are high for workers and businesses — and candidates are taking sides

AB 5, which passed the state assembly in May, presents the biggest challenge yet to the ride-hailing companies’ business models and would rewrite the rules of the entire gig economy. Hundreds of thousands of independent contractors in California, ranging from Uber and Amazon drivers to manicurists and exotic dancers, would likely become employees under the bill.

That small status change is huge. These workers would suddenly get labor protections and benefits that all employees get, such as unemployment insurance, health care subsidies, paid parental leave, overtime pay, workers’ compensation, and a guaranteed $12 minimum hourly wage. It also means companies that hire small armies of independent contractors are fuming about the added cost — Uber and Lyft especially.

But labor unions and lawmakers have resisted their calls for a compromise. Instead, they’ve ramped up efforts to get public support for AB 5.

On Aug. 14, Warren gave a full-throated defense of the bill in the Sacramento Bee, arguing that it will end the “shameful” practice of exploiting workers through misclassification:

AB 5 is effective because it is straightforward and simple: It makes full “employee” status the default under state law, which will automatically protect millions of workers. The experience of other states — including my home state of Massachusetts where a similar law has been in effect for many years — shows that a comprehensive approach is most effective.

Lorena González, the San Diego assemblywoman who wrote AB 5, was thrilled when Warren endorsed the bill and called on other presidential candidates to weigh in too.

A week later, Harris’s campaign did with her support.

“Good to see those seeking to lead our country take a firm #YesonAB5 stance,” tweeted Steve Smith, with the California Labor Federation.

Their endorsements are yet another sign that the Democratic Party is becoming far more progressive. In the past, mainstream Democrats would have been careful not to anger big business donors and powerful tech companies like Uber, and more than likely would have sought a compromise.

But Warren, Harris, and Sanders are pressuring California lawmakers to make no exceptions. That alone reflects the growing power of the US labor movement.

Last year, Sanders went as far as to introduce a Senate bill that would extend the employee standard being used in AB 5 to federal labor laws. Other 2020 contenders in the Senate — Kirsten Gillibrand and Cory Booker — have co-sponsored the bill, and Rep. Tim Ryan co-sponsored the House version. Sens. Amy Klobuchar and Michael Bennet did not sign on, and neither has Rep. Tulsi Gabbard. Other 2020 candidates have not mentioned the bill in public.

California’s AB 5 bill, explained

The California bill, known as AB 5, expands a groundbreaking California Supreme Court decision last year known as Dynamex. The ruling and the bill instruct businesses to use the so-called “ABC test” to figure out whether a worker is an employee. To hire an independent contractor, businesses must prove that the worker a) is free from the company’s control, b) is doing work that isn’t central to the company’s business, and c) has an independent business in that industry. If they don’t meet all three of those conditions, then they have to be classified as employees.

That is a much clearer — and stricter — standard of proof than the vague guidelines under federal law. And it’s one of the biggest challenges yet to the profit model of Uber, Instacart, Postmates, and other tech companies that rely on a small army of independent contractors. Uber likely would have to reclassify tens of thousands of drivers in California as employees, something Uber drivers have been fighting for in court, unsuccessfully, for years.

“Big businesses shouldn’t be able to pass their costs onto taxpayers while depriving workers of the labor law protections they are rightfully entitled to,” Assemblymember Gonzalez tweeted after members voted overwhelmingly in favor of the bill she helped write.

California businesses have been panicking over the possibility of the bill passing. The state’s Chamber of Commerce and dozens of industry groups have been lobbying for exemptions, and a long list of professions was excluded from the bill: doctors, dentists, lawyers, architects, insurance agents, accountants, engineers, financial advisers, real estate agents, and hairstylists who rent booths at salons.

Uber and Lyft, in particular, have been quietly lobbying behind the scenes for an exemption to the bill in the Senate. They’ve even begged in public for a compromise. The companies want to keep treating drivers as contractors, and in exchange, they promise to set a minimum pay rate for drivers while they’re picking up and dropping off passengers, create a company-backed fund for benefits like paid time off, and establish an association for drivers to advocate for further improvements.

In a San Francisco Chronicle op-ed published in June, Uber CEO Dara Khosrowshahi and Lyft co-founders Logan Green and John Zimmer suggest drivers would no longer have the flexibility to make their own schedules if they become employees.

“It’s also no secret that a change to the employment classification of ride-share drivers would pose a risk to our businesses. But it’s equally true that the status quo can and should be improved,” they wrote.

The op-ed incensed drivers and labor advocates. So has Uber’s strategy of using the apps to get drivers to oppose the bill. “Tell lawmakers to protect driver flexibility,” read the message that Uber sent to drivers in June.

Drivers who have been organizing in recent months are angry, and now they’re hitting back with their own messaging. They say nothing in the law would stop the companies from offering schedule flexibility to employees. “The drivers making their platform run do not stand with their executives,” the group Gig Workers Rising tweeted earlier this summer.

The battle between drivers and ride-hailing executives is intensifying as the Senate prepares to vote on the bill next month, and much is at stake. The outcome has the potential to reshape, or disrupt, an exploitative business model championed by Silicon Valley and exported to the world.

Ride-hailing apps have done everything to keep drivers as contractors

When Uber drivers went on strike across the world in May, much of their frustration had to do with their lack of power as independent contractors.

Uber’s profit model, like that of other companies in the gig economy, depends on all the money saved from skirting US labor laws.

By classifying drivers as independent contractors instead of employees, Uber doesn’t need to pay certain taxes, benefits, overtime, or minimum wages to tens of thousands of drivers. As self-employed contractors, drivers don’t have a legal right to form labor unions or negotiate contracts.

Uber drivers have spent more than six years fighting the company in court, saying they’ve been intentionally misclassified. They argue that drivers should be considered employees because the company has so much control over their workday, including strict rules on their vehicle conditions, what rides they can take, and which routes to use.

Uber has fought back, maintaining that drivers are not employees because they set their own schedules and provide their own cars.

So far, the issue has not been resolved, at least not at the national level.

In May, Uber settled the main court case with 13,600 Uber drivers, agreeing to pay them $20 million but without changing their status as independent contractors. The other 350,000 drivers who were part of the initial class-action lawsuit had signed mandatory arbitration agreements, so a federal judge is requiring them to pursue their cases in a private forum, where they are less likely to win their case.

But it would be hard for Uber to pass the ABC test if the California bill becomes law; driving people around in cars is a central part of the company’s business. Any challenge to the drivers’ status as contractors threatens Uber’s bottom line, which is another reason the bill is so significant.

Uber has been upfront with investors about the risk of a labor revolt. In a recent Securities and Exchange Commission filing, Uber acknowledged that giving drivers the same legal rights as employees would “fundamentally change” the company’s financial model:

If, as a result of legislation or judicial decisions, we are required to classify Drivers as employees … we would incur significant additional expenses for compensating Drivers, potentially including expenses associated with the application of wage and hour laws (including minimum wage, overtime, and meal and rest period requirements), employee benefits, social security contributions, taxes, and penalties.

So it’s unsurprising that Uber is not happy about a law that would force the company to hire drivers as employees.

As employees, gig workers would have a safety net for the first time ever. The changes from the bill would also benefit the state of California, which estimates that it loses $7 billion in tax revenue each year from companies that misclassify employees. California has the largest state economy in the country and is home to the Silicon Valley tech industry — which means its lawmakers have outsize influence in national politics. The bill could lead other states to take similar action.

“Here we are in a great economy and yet most working people have no money saved,” Caitlin Vega, legislative director for the California Labor Federation, told me at the time. “[Companies] are doing this because they can; they’ve gotten away with it.”

Democrats have a veto-proof supermajority in California’s Senate and Assembly, so there’s a good chance AB 5 will become law, making it harder for those companies to get away with misclassifying their workforce. The question now is whether lawmakers will let Uber and Lyft skip the test altogether. Presidential candidates will be watching closely.

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