Ride-hail dri­vers protest in favor of Cal­i­for­ni­a’s AB 5.

James Martin/CNET

Big changes are afoot for the gig econ­o­my. Cal­i­for­ni­a’s Sen­ate passed a land­mark bill on Tues­day night that could make Uber, Lyft, Door­Dash, Post­mates and oth­er gig econ­o­my com­pa­nies reclas­si­fy their work­ers as employ­ees. Gov. Gavin New­som has said he’ll sign it into law.

The prospec­tive law, AB 5, could upend these gig econ­o­my com­pa­nies, which have busi­ness­es hinged on bring­ing aboard hun­dreds of thou­sands of inde­pen­dent con­trac­tors whose labor is far cheap­er than that of employ­ees. The set­up ben­e­fits the com­pa­nies by shift­ing many costs to the work­ers. For exam­ple, Uber and Lyft dri­vers sup­ply and main­tain their own cars and also pay for their own health care. The dri­vers also aren’t giv­en ben­e­fits, such as sick days or over­time pay.

Uber and Lyft have both said their busi­ness­es could be bro­ken if they’re required to reclas­si­fy their dri­vers as employ­ees. The move would bring a new set of costs to the com­pa­nies — both of which are strug­gling to become prof­itable. Uber had two rounds of lay­offs in the past six weeks to con­trol its costs. 

When Uber filed to become a pub­licly trad­ed com­pa­ny, it specif­i­cal­ly iden­ti­fied the risk in a fil­ing with the Secu­ri­ties and Exchange Com­mis­sion. “Our busi­ness would be adverse­ly affect­ed if dri­vers were clas­si­fied as employ­ees instead of inde­pen­dent con­trac­tors,” it wrote.

Tony West, Uber’s chief legal offi­cer, did­n’t appear too wor­ried dur­ing a press call with reporters on Wednes­day.

“This busi­ness is incred­i­bly adapt­able and has with­stood enour­mous enour­mous chal­lenges to its busi­ness mod­el and has always come through those stronger and more respon­sive,” he said. “I do feel con­fi­dent that we are going to be able to man­age through this just as we have been able to man­age through in the past.”

Dri­vers will not be auto­mat­i­cal­ly reclas­si­fied as employ­ees, even after Jan­u­ary of next year. Tony West, Uber’s chief legal offi­cer

Once signed by New­som, AB 5 is set to go into effect on Jan. 1, 2020. Under the bill, all com­pa­nies using inde­pen­dent con­trac­tors in the state will be put to a three-part test that looks at how much con­trol the com­pa­ny has over its work­ers. This includes things like whether or not the com­pa­ny has work­ers wear uni­forms, use the com­pa­ny’s equip­ment and fol­low busi­ness man­dates.

West believes Uber will pass this test, how­ev­er, and there­fore its work­ers won’t be required to become employ­ees.

“Under that three-part test, arguably the high­est bar is that a com­pa­ny must prove that con­trac­tors are doing work ‘out­side the usu­al course’ of its busi­ness,” Tony West, Uber’s chief legal offi­cer, said dur­ing a press call with reporters on Wednes­day. “Just because the test is hard does­n’t mean that we will not be able to pass it.” 

“Because we con­tin­ue to believe dri­vers are prop­er­ly clas­si­fied as inde­pen­dent… dri­vers will not be auto­mat­i­cal­ly reclas­si­fied as employ­ees, even after Jan­u­ary of next year,” he said.

Cal­i­for­nia sets the stage

What hap­pens in Cal­i­for­nia rarely stays there. By dint of its size, the Gold­en State often sets legal and reg­u­la­to­ry stan­dards for the coun­try. The state is the largest by both pop­u­la­tion and eco­nom­ic activ­i­ty, and that size means com­pa­nies around the world have to meet its often-strict and prece­dent-set­ting stan­dards if they want to tap the lucra­tive mar­ket.

In addi­tion to AB 5, the state passed the Cal­i­for­nia Con­sumer Pri­va­cy Act, which sets stan­dards for col­lect­ing infor­ma­tion online and goes into effect in Jan­u­ary. The state’s rules and laws on fuel effi­cien­cy, emis­sions and air qual­i­ty have affect­ed automak­ers around the world. And the Cal­i­for­nia Assem­bly just passed a bill that would allow col­lege ath­letes to be paid for the use of their like­ness.

San Fran­cis­co and Oak­land passed the ear­li­est laws in the US curb­ing the use of facial recog­ni­tion tech­nol­o­gy, and San Fran­cis­co was among the first cities to curb Airbn­b’s busi­ness, requir­ing hosts to be reg­is­tered with the city.

AB 5 could serve as a first step to broad­er over­sight of the gig econ­o­my. Already New York City ensures dri­vers earn at least $17.22 per hour for each trip they make and has put lim­its on fleet sizes to pre­vent con­ges­tion. Wash­ing­ton state and Ore­gon have con­sid­ered leg­is­la­tion sim­i­lar to AB 5.

Just because some­one real­ly needs to work does not mean that their rights as a work­er should be stepped all over. Edan Alva, ride-hail dri­ver

Michael Droke, a labor and employ­ment part­ner at Dorsey & Whit­ney, said AB 5 will like­ly spur oth­er states into action. 

“While lim­it­ed work­ers to Cal­i­for­nia, oth­er states are like­ly to enact sim­i­lar leg­is­la­tion,” Droke said.

Sup­port for AB 5 was evi­dent among ride-hail dri­vers in Cal­i­for­nia. Thou­sands of dri­vers across the state ral­lied to whip up sup­port for AB 5 as it made its way through the leg­is­la­ture. They protest­ed in front of Uber’s San Fran­cis­co head­quar­ters and orga­nized a car­a­van from Los Ange­les to Sacra­men­to. Many met with law­mak­ers to push for the bill.

“AB 5 is only the begin­ning,” accord­ing to Edan Alva, a ride-hail dri­ver who was involved in AB 5 orga­niz­ing with the group Gig Work­ers Ris­ing. He says the momen­tum for change is build­ing. “Just because some­one real­ly needs to work does not mean that their rights as a work­er should be stepped all over.”

AB 5 bat­tles Uber, Lyft dri­vers are one step clos­er to becom­ing employ­ees in Cal­i­for­nia Uber, Lyft pull out the stops to defeat bill that’d make dri­vers employ­ees San Fran­cis­co joins the fight to make Uber and Lyft dri­vers employ­ees

Uber and Lyft have said the major­i­ty of their dri­vers don’t want to be employ­ees, a sta­tus that would change the rela­tion­ship between the com­pa­nies and the work­ers. 

The com­pa­nies have said that if they could­n’t strike a deal on AB 5, they’d take the issue to Cal­i­for­nia vot­ers by spon­sor­ing a bal­lot ini­tia­tive in Novem­ber 2020 that would exempt them from the law. Along with Door­Dash, Uber and Lyft have said they’d spend $30 mil­lion each to spon­sor the ini­tia­tive.

“We are ful­ly pre­pared to take this issue to the vot­ers of Cal­i­for­nia to pre­serve the free­dom and access dri­vers and rid­ers want and need,” Adri­an Durbin, a Lyft spokesman, said in an emailed state­ment.

Orig­i­nal­ly pub­lished Sept. 11.Update, 2:07 p.m.: Adds attor­ney com­ment. Update, 3:11 p.m.: Adds com­ments from Tony West, Uber’s chief legal offi­cer.

Tags Mobile Tech Indus­try Lyft Uber

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