WILFORD: California Voters Save The Gig Economy From Burdensome AB5, But There’s More Work To Be Done

Andrew Wilford Contributor
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Conservatives may not hold a high opinion of California voters, but they got at least one thing right this week. By voting in favor of Proposition 22, Californians carved out crucial relief for app-based drivers from the burdensome freelance work law passed last year, a move that will allow them to maintain the independence and flexibility that is the occupation’s main draw. The fact that even California voters recognized the need to protect Uber and Lyft drivers from its legislature only underscores the danger that other freelancers in the state face as long as Assembly Bill 5 remains in effect.

Assembly Bill 5, or AB5, is a law that requires many businesses operating in the state to reclassify freelance workers not as independent contractors but as employees. For the purposes of worker classification, an “employee” is generally a worker who receives certain benefits and stricter labor law protections, but at the same time has less flexibility because their workflow and schedule is managed directly by the business. On the other hand, an independent contractor trades fewer mandated benefits for the freedom and flexibility to work as they see fit.

The Uber and Lyft model of work clearly maps closer with the “independent contractor” classification. Drivers can choose when they log in to the apps and work, flexibility that is a huge part of the draw. Most rideshare drivers are driving to supplement other sources of income, and 96 percent of Lyft drivers report the ability to choose when to drive as being crucial to rideshare driving’s appeal.

Forcing Uber and Lyft to reclassify their drivers as employees would have had profound consequences for the companies’ business models. If Uber and Lyft had to offer their drivers health care benefits, for example, it would be impractical for the companies to also allow them to drive only when they wished. On the other hand, how many drivers hoping to make a few dollars on the side would lose that opportunity when told they had to drive 40 hours a week?

Practically, California’s approval of Proposition 22 keeps Uber and Lyft in the state. Both companies had threatened to leave if their efforts to fight AB5 were unsuccessful.

But while California voters did the right thing, the lengths that Uber and Lyft had to go to to mitigate the consequences of the California legislature’s ill-advised legislation is a reminder of the other businesses that are stuck dealing with AB5. Uber, Lyft, along with other app-based delivery businesses such as Postmates and Doordash which were also protected by Proposition 22, funded a campaign which spent roughly $205 million in favor of voting “yes” on Proposition 22, money that would have been better used for nearly any other purpose besides fixing a dumb error perpetrated by the legislature.

California freelancers working for a business that doesn’t have those kinds of resources may not be so lucky. When I wrote about AB5’s aftermath back in December of 2019, I noted a few other industries affected by AB5, such as truck drivers and freelance writers. These workers weren’t so fortunate as to get a carveout from AB5, and those that lost their jobs won’t be getting them back.

Clearly, the fight against AB5 isn’t over. California voters who saw the danger AB5 posed to app-based drivers should recognize that the scope of the law extends elsewhere, and push to scrap it entirely.

And that doesn’t mean that there’s no room to push for increased benefits and protections for freelance workers. Proposition 22 allows for drivers classified as independent contractors to enjoy some benefits such as health care subsidies, accident insurance, and a minimum earnings guarantee, while still keeping the flexibility of their basic work structure in place.

Rigid, World War II-era employment law is not prepared to handle 21st century economic structures. Congress should consider addressing employment classification issues in order to prevent these kinds of problems from harming the explosive growth of the sharing economy elsewhere in the country. That’s a far better option than allowing a patchwork of state rules that fail to recognize the changing nature of the new economy.

Andrew Wilford is a policy analyst with the National Taxpayers Union Foundation, a nonprofit dedicated to tax policy research and education at all levels of government.