Workers’ Freedom At Risk In California

Sen. Elizabeth Warren, with one eye on California presidential primary votes and the other on the state’s rich political donors, recently wrote an op-ed in the Sacramento Bee in which she demanded someone do something about that “shameful” gig economy.

Warren, a Rutgers-trained lawyer, has expended a lot of energy to establish herself as a friend of the common working man and woman. So spinning a tale about worker “exploitation” is not unexpected from the Massachusetts Democrat.

While California Sen. Kamala Harris, the former state attorney general who’s also running for the Democratic presidential nomination, has not addressed Sacramento’s intention to regulate the gig economy, it’s clear that her view is similar to Warren’s. Assembly Speaker Anthony Rendon erased any doubt about where Democrats stand at a family-unfriendly rally at the State Capitol last month. The Lakewood Democrat said the trend toward freelance work is “about corporations trying to oppress workers. When you hear folks talking about the new economy, the gig economy, the innovation economy, it’s (expletive) feudalism all over again.”

Legislation that would statutorily define which workers are independent contractors and which must be hired as employees was recently approved by a Senate Committee. Assembly Bill 5, already passed in the Democratic-controlled Assembly by 59-15 margin, is an effort to codify the Dynamex decision. In that 2018 case, the California Supreme Court ruled that when a worker-business arrangement cannot pass its “ABC test,” a three-pronged standard that determines if a worker can legally operate as an independent contractor, the worker must be a hired employee.

The effort is all for the benefit of workers, say supporters. After it passed in the lower chamber in May, Assemblywoman Lorena Gonzalez-Fletcher, D-San Diego, the bill’s sponsor, tweeted out a thanks to her colleagues who voted to prevent workers from being deprived “of the labor law protections they are rightfully entitled to.” Steve Smith, the California Labor Federation’s director of communications, has said that “classifying workers as independent contractors” means “cheating” them “out of basic protections in the law.”

That’s not universally agreed upon, though. Working as an independent contractor has several advantages over being a hired staff member. Freelancers make their own hours, work for multiple companies at the same time, walk away from bad bosses, supplement their full-time jobs when emergency funds are needed, juggle work and school, and look for projects they prefer rather than taking those assigned to them.

According to the Bureau of Labor Statistics, “fewer than one in 10 independent contractors would prefer a traditional work arrangement.” What happens to the nine who prefer freelancing if lawmakers set the bar so high only a few can reach it?

AB5 won’t make contract work illegal. But it would severely restrict worker freedom, as well as handcuff companies whose existence depends on freelancers. If businesses are required to add to their burden of administrating overtime pay, payroll taxes, income tax withholdings, scheduling, insurance plans, and unemployment benefits, their balance sheets will suffer.

“Independent contractors, on average, cost about 66 cents on the dollar for every hour they work compared to a full-time employee,” says the R Street Institute’s Jarret Dieterle, with California businesses expected to be paying an additional $1.3 billion to nearly $7 billion a year if AB 5 becomes law.

Businesses would have no choice but to respond to AB5 the same way they address minimum wage hikes: cutting employees’ hours, and in some cases eliminating jobs. It’s conceivable revenue could fall so far that many will no longer be able to stay in business.

Then what do the freshly-hired workers, flush with new but suddenly useless benefits, do after their employers close shop?

Complicating the legislation are discussions about exemptions for workers in some industries, such as medical, engineering, real estate sales, and insurance sales. Carve outs for artists have also been considered. Critics believe the special treatment would be both harmful and unfair.

“By openly discussing — and practically encouraging — ongoing lobbying efforts by industries to secure exemptions, citizens and voters are likely to conclude that politicians are picking winners and losers based on which industries have the most political clout,” says a recent R Street Institute paper co-authored by Dieterle.

As many as 2 million Californians in a labor force of about 19.3 million will be affected by the outcome of AB5. When it reaches the Senate floor, will lawmakers vote based on what they prefer, or what workers want? Policymakers almost without exception believe the two are the same, but that’s rarely true.

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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