Gig Economy Firms Fight California Overreach with $110 Million Initiative

Gig Economy Firms Fight California Overreach with $110 Million Initiative

In a rational response to Assembly Bill 5, which in effect outlaws the gig economy, ride-share and delivery companies have proposed a November 2020 ballot measure aimed at protecting their businesses. But it wouldn’t repeal the law. Shouldn’t that have been the goal?

AB 5 doesn’t leave businesses much time to adapt. It becomes law on Jan. 1, at which time “the bar will be raised to unprecedented heights,” according to the Fisher Phillips law firm. It’s also retroactive, leaving companies with months of headaches ahead trying to sort out which of their independent contractors must now be hired as employees if they are to continue working with them, and which are still outside contractors.

Politics demanded that legislators exempt doctors, dentists, veterinarians, lawyers, insurance agents, securities brokers-dealers, and accountants, from the law, as well as engineers, real estate agents, hairstylists, manicurists, and barbers. Commercial fishermen, marketing professionals, travel agents, graphic designers, and a few others are also among the exempt workers.

Releasing some from the bonds of the law while holding everyone else to its rules is a clear example of the public sector abusing its lawmaking authority. True public servants don’t decide who wins and who loses in the private sector.

Treating professions and jobs unequally under the law also guarantees legislators will be spending much of the 2020 session debating who else will be exempted. Naturally the exceptions will be handed out to those with the tightest political connections and in the industries favored by politicians.

To clear the bar that’s now set at “unprecedented heights,” businesses will have to manage income tax withholdings, payroll taxes, overtime pay and hours, formal scheduling, employee insurance plans, and unemployment benefits. With about 2 million independent contractors in California to account for, compliance costs for all companies could reach an estimated $6.5 billion a year.

Uber, Lyft, and other ride-share businesses are likely to be AB 5’s biggest losers. The costs for them to shift their freelance workers to paid employees will be enormous. With that over their heads, they and two other gig-economy companies have committed $110 million so far to find relief at the ballot box.

Their measure, called the Protect App-Based Drivers and Services Act, includes a few concessions, such as an “earnings guarantee,” “compensation for vehicle expenses,” and a health care subsidy. It’s not quite the big counterpunch — a full repeal of AB5 — Sacramento deserves.

While the measure wouldn’t cover workers outside of “app-based rideshare and delivery drivers,” it might be the only politically realistic path forward for these companies whose business would be significantly diminished — as will the income and opportunities for those who work for them — if AB 5 remains the law governing their industry.

It’s unfortunate that everyone else, the remaining 1.5 million or so independent contractors who have enjoyed and often needed the freedom to work as freelancers, don’t have $110 million in their wallets, and will have to adapt to AB 5. No longer will they have the liberty to make their own hours, work for multiple companies simultaneously, avoid surly supervisors, generate emergency income, work around school and family schedules, and pursue the work they want to do instead of taking projects assigned to them in a traditional job setting.

And that’s if they have jobs to go to. The increased cost of hiring means fewer employment opportunities will be available. There’s no way around that.

This all could have been avoided. Rather than handing out exemptions to the law based on industry, sector or profession, lawmakers should have granted exemptions at the personal level. If a freelance worker doesn’t want to be covered under the law, he or she should have the right to not participate.

But instead of forcing those who don’t want to be covered by the law to go through the hassle of opting out — ask any worker who tries to opt out of paying union dues how hard it is — those who wish to be covered would be required to actively opt in.

Better still, lawmakers could have left the private sector alone. There’s no harm in letting people make decisions for themselves. But they were determined to hand a gift to the unions, which see newly hired employees as a pipeline for new dues and miss entirely the collateral damage of AB 5.

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.