Is the Gig Up After Signing of AB 5?

Now that dust has settled after the signing of perhaps the hottest bill this legislative session – Assembly Bill 5 – what’s next for those who work in the gig economy?

A panel of free-market advocates and subject matter experts recently got together to discuss the bill’s aftermath at Pacific Research Institute Young Leaders Circle event held last week in San Francisco.

The panel event was focused on how the new California state law will impact gig companies and workers due to changes in the classification of independent contractors and freelance workers.

Readers may recall that Assembly Bill 5 codifies, or makes law, a 2018 California Supreme Court ruling popularly referred to as the Dynamex ruling. In that decision, the court changed a litmus test for determining worker classification, switching from a broad checklist, referred to commonly as the Borello test, to a strict, three-point ruling under the “ABC test.”

One common denominator all the panelists shared was that the discussion about how workers will be classified is only beginning. Specifically, Jennifer Barrera of the California Chamber of Commerce and Shawn Lewis of the National Federation of Independent Business detailed how Assembly Bill 5 may be picking winners and losers through exemptions.

Certain industries like dentists, lawyers, real estate agents, and more received exemptions from Assembly Bill 5. Exempted industries will use the old Borello test for worker classifications, not the new ABC test. The remaining industries will be forced to comply with the new state law at an estimated 20 to 30 percent cost increase.

The panelists also noted that California’s pending law on the gig economy is probably the beginning of movement at the state level to legislate the gig economy. Other states like Nevada and Wisconsin are the in early stages of addressing worker classifications.

Vignesh Ganapathy with Postmates also brought up a crucial point about Assembly Bill 5 and the assumption it makes about gig economy business models. He noted that Postmates contractors average three to four hours of work a week. Furthermore, he noted the high-turnover rate. Many Postmates contractors only work with the company for up to four months.

It’s one of the startling issues with Assembly Bill 5: how wrong it gets the future of work.

Much like other gig economy companies, Postmates is not structured like a traditional business with long-term employees. Assembly Bill 5 is very much trying to put the square peg of traditional employment into the round hole of the gig economy business model. Forcing them to adopt one means fewer workers will be hired and consumers will pay more for their service.

Another explicit point the panelists pointed out was that not much will happen when the law goes into effect on Jan. 1, 2020. The boring reality of Assembly Bill 5 is there is no magic employment wand. Much of the changes will need to go through the legal system. Amendments are also expected by legislators in 2020.

During the panel, San Francisco Chronicle reporter Carolyn Said mentioned that Assemblywoman Lorena Gonzalez, the author of Assembly Bill 5, will pursue cleanup language to the bill during the 2020 legislative session, as will industries continuing to look for exemptions.

Gig companies are also on the offense, pursuing a ballot measure to put before California voters in the November 2020 election. Although the ballot measure language has not been shared publicly, it will most likely mirror an alternative proposal gig economy companies were offering to the California Legislature this fall. The alternative includes a guaranteed minimum wage, benefits, and collective bargaining.

Uber, Lyft, DoorDash and others have agreed to put in a minimum of $90 million for the ballot measure campaign. It seems that no matter what goes into effect next year, gig companies won’t go down without a fight.

The Young Leaders Circle panel was a great opportunity to learn about Assembly Bill 5 and we plan to keep an eye on the new law in 2020. To make sure you don’t miss our next event, follow the Young Leaders Circle on Facebook, Instagram, and Twitter.

Evan Harris is Pacific Research Institute’s Media Relations and Outreach Manager.

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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