California bill forces platforms to classify workers as employees

Assembly Bill 5 has been passed in California, much to the displeasure of companies that rely on the gig economy. The bill would classify workers in platforms such as Uber and Lyft as employees rather than independent contractors, forcing these platforms to pay Social Security, payroll and state employment taxes, provide worker’s compensation insurance and comply with regulations regarding minimum wage, hours and working conditions. The bill now needs the signature of California Governor Gavin Newsom, who has already announced his support of the bill, in order to be written into law.

Companies like Uber and Lyft have operated by providing a “platform” for independent contractors to take part in, allowing the companies to avoid the extra costs and regulations of hiring employees. But the new bill would force these companies to comply with the ruling established in a court case between Dynamex Operations and the Supreme Court of Los Angeles, which ruled that Dynamex had misclassified its workers as independent contractors, citing the ABC test (used to determine whether a person is an employee or independent contractor). The ABC test claims that to classify workers as independent contractors, a company must be able to prove that the worker is free from direction of the hiring entity, performs work outside the scope of the hiring entity’s business and is regularly engaged in “independently established trade, occupation, or business of the same nature as the work performed.” Uber and Lyft are unable to prove this last point with most of their workers, disallowing them to classify workers as independent contractors.

It is predicted that once this bill is signed into law, operating costs for the affected companies could increase by 30 per cent. Uber and Lyft claim that this bill will hurt drivers who want flexible working hours. Senators who have backed the bill like Maria Durazo have claimed that these companies are taking advantage of worker’s rights, Durazo stating: "Let’s be clear, there’s nothing innovative about underpaying someone for their labour and basing an entire business model on misclassifying workers." Uber, Lyft and DoorDash have pulled together $90m to fund an initiative in the upcoming 2020 ballot to reverse the bill. They worry that the implementation of the bill in California could spur other states to follow suit.

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