Battle over “progressive” solutions leaves independent contractors on edge

As the final week of the legislative session was winding down, the Senate and Assembly in party-line votes approved Assembly Bill 5, which will codify the state Supreme Court’s Dynamex ruling, leaving as many as 2 million freelance workers with an unsure future.

Gov. Gavin Newsom, who publicly endorsed the bill over the Labor Day weekend, is expected to sign it.

The bill won’t outlaw freelance work. But by setting the bar to determine which workers can be independent contractors and which workers must be hired employees so impossibly high, it will place severe limits on worker freedom.

The public was told the rush to turn the Dynamex ruling into law was an effort to end, in the words of Los Angeles Democrat Sen. Maria Elena Durazo, the corporate “exploitation of hard-working Californians.” But what could be more exploitative than using workers as political pawns to further the interests of labor unions, which are already counting the dues they expect to collect from new hires?

To overcome some resistance, Assemblywoman Lorena Gonzalez Fletcher, the bill’s author, agreed to exempt a few worker classifications. It was just another exercise in government choosing winners and losers. Senate Republicans offered amendments to exempt physical therapists, interpreters, and those working in health care or for non-profits. The Democrats rejected them all.

Companies that weren’t exempted and rely heavily on contract workers have mounted a counteroffensive. Three of the more prominent ones, Uber Technologies Inc., Lyft Inc., and DoorDash, are committing $90 million to fund a 2020 ballot initiative that could upend the bill, should it become law. They are characterizing their measure as a “progressive” solution, while at the same time the political left considers AB5 to be “progressive” public policy.

Watching the sides fight to see whose idea is the most “progressive” holds a certain appeal. But it’s no contest for ideological purity. It’s simply a battle of marketing. Those companies know that by labeling their initiative “progressive,” it has a better chance of being approved by California voters. Meanwhile, lawmakers will justify their votes for AB5, claiming it is the more “progressive” alternative, as it will advance the Blue State agenda, and is another brick in the Trump Resistance wall.

Critics, however, consider AB5 to be more regressive than forward-looking. Should it become law, they say, many independent contractors could find themselves out of work, and California’s gig economy held back.

Opponents point out that under a new regime, no longer will freelancers be able to make their own hours, avoid nasty supervisors, take on projects of their choice rather being assigned tasks they’d prefer to avoid, and work multiple jobs at the same time. Nor could they earn extra income in times of financial emergency and have the convenience of flexible work hours while in school or raising a family.

Uber, whose California drivers earned nearly $3 billion last year, says if AB5 is the law, the company “would likely have to exert more control over drivers,” and dictate where they work, how they work, as well as impose restrictions on where they could work outside of Uber.

“Uber would likely hire far fewer drivers than we currently support, and we’d likely have to require a minimum number of hours per week,” the company said. “Scheduling and rigid shifts would become the norm.”

Companies that have based their businesses on contract workers are facing a difficult future. To comply with AB5, they will have to begin paying overtime wages when warranted, determining, and withholding payroll and income taxes, providing health insurance plans and unemployment benefits, and scheduling work hours and breaks. The added costs will negatively impact their bottom lines. The losses won’t be modest.

Companies using independent contractors save “between 29 and 39 cents for every dollar of pay — possibly more for certain classes of construction workers,” says a UCLA report. Another study has found California businesses could lose $1.3 billion to $6.5 billion a year if they have to reclassify their contract workers as full-time employees.

The dollars lost could instead be used to hire more workers, expand operations, innovate, better serve customers, acquire and save failing businesses, respond to changing market conditions, and make companies more attractive to shareholders.

Would leaving workers and employers free to reach their own agreements be such a bad idea? Of course, there will never be a perfect arrangement. As economist Thomas Sowell has said, there are no solutions, only tradeoffs. And it’s clear that some are much better than others.

Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.

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Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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