The California State Senate has passed Assembly Bill 5, a new bill that would make Uber and Lyft drivers employees, likely turning Uber and Lyft drivers into employees. If signed into law, the bill would restrict the use of independent contractors. Such a change would profoundly impact California's labor market. In particular, AB 5 would affect thousands of gig economy workers. This includes Uber and Lyft drivers and couriers for delivery apps such as Postmates and DoorDash. It could also affect Amazon warehouse workers and delivery drivers.
New rules for determining whether a worker is an employee or independent contractor
AB5 codifies and expands the California Supreme Court’s groundbreaking 2018 decision in Dynamex Operations West, Inc. v. Charles Lee. In that case, the court adopted a new test for determining when a worker is an employee. Under the new "ABC Test," a worker is presumed an employee and will deemed so unless the employer proves that:
(1) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
(2) that the worker performs work that is outside the usual course of the hiring entity’s business; and
(3) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
Uber and Lyft do not treat their workers as employees, but AB 5 would likely require them to do so
Under previous law, employers could usually treat workers as independent contractors as long as they did not exercise direct control over workers’ schedules and tasks. This regime allows companies such as Uber, Lyft, Postmates, and DoorDash to treat their drivers and couriers as independent contractors.
Under the rule codified in AB 5, companies must show that the worker performs work outside of the core of their business. Because transporting people is so central to Uber and Lyft’s business, it will be difficult for such companies to avoid treating their workers as employees.
The effects of being an independent contractor are significant
While it may see like a subtle distinction, the practical effects of being an independent contractor, as opposed to an employee, are significant. Many labor and employment laws apply only to employees. For example, in some circumstances, companies can pay independent contractors below minimum wage. Additionally, employers must also carry workers’ compensation insurance to cover all employees, but not independent contractors.
Perhaps most critically, much of the state and federal law that prohibits employment discrimination does not apply to independent contractors. Accordingly, independent contractors often have no legal recourse for harassment and discrimination.
Unsurprisingly, misclassification is common in California. The Department of Industrial Relations estimates that misclassification costs the State $7 billion per year in lost payroll tax revenue. Even if the governor signs AB 5 into law, employers will undoubtedly continue to misclassify workers.
Uber and Lyft say they wont classify drivers as employees
Uber and Lyft have already announced that they do not plan to reclassify their drivers as employees if the bill becomes law. They argue that they are technology companies, not transportation companies. Therefore, they contend that their drivers do not perform tasks that are core to their business. If AB 5 becomes law, this argument will surely be tested in court.
AB 5 now goes to Governor Newsom, who is expected to sign it into law
AB 5 now goes to Governor Gavin Newsom for signature. Newsom has already announced his support for the bill and will likely sign it. AB 5 would go into effect on January 1, 2020.
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If you believe you have been misclassified as an independent contractor, contact the Khadder Law Firm for a free consultation....