What is AB5 and Why Should I Care?

Until now, rideshare drivers have fallen into a labor limbo of sorts classified as independent contractors by the National Labor Relations Board and thus not entitled to protected union activity. 

Welp, it’s finally happened. Bill AB5 has passed the California Senate and will be signed into law in January 2020. So, what does that even mean? A lot actually. It could mean that it’s the beginning of the end of rideshare driving being a viable, flexible side gig.

Wait, so I’m an employee now?

Up until this point, all rideshare drivers have been independent contractors and did not have the rights or benefits that an employee of a company would receive.

The AB5 Bill was actually ignited by a case in 2018 in which LA delivery drivers sued their employer for lost wages after they were reclassified as independent contractors.

The court docs go on to reveal that “In recent years, the relevant regulatory agencies of both the federal and state governments have declared that the misclassification of workers as independent contractors rather than employees is a very serious problem, depriving federal and state governments of billions of dollars in tax revenue and millions of workers of the labor law protections to which they are entitled.”

As a result, the AB5 Bill says that in order for a worker to be classified as an independent contractor, it must pass the ABC test.  This means that…

An independent contractor must be: 

  1. free from the control of the hiring entity
  2. perform work outside the normal scope of the hiring entity 
  3.  be an independent established practitioner of the trade performed. 

In short, rideshare drivers and gig delivery drivers for companies like DoorDash, do not pass the ABC test for independent contractor status.

However, AB5 means that independent contractors will be entitled to earn minimum wage and overtime, receive unemployment insurance and family leave, and have bargaining rights. 

California hopes the bill will help recoup much of the $7 billion a year that businesses like Uber and Lyft have evaded in paying payroll taxes since the inception of both companies. 

So, what does that mean for me?

If you’re a rideshare driver in California, in the next few weeks you can expect to see some carefully worded emails from both companies and by January 2020 we will definitely see Uber and Lyft change some driver policies. For example, Lyft is already prepping their Cali drivers with messaging that says “scheduled shifts” maybe a thing of the future where you’ll be scheduled to work ahead of time for a set time period.

Whereas, right now, Uber is claiming that “drivers are not a part of our core business” and are refusing to be proactive in addressing their California drivers and the seemingly eminent transition to an employee. Their claim is that they are exempt from the California Gig Economy Law because it’s a “platform” not a taxi company.

You say potato, I say potato. It’s just semantics.

Any way you look at it, the passing of AB5 is a massive hit to Uber and Lyft’s business model and their overall “path to profitability.” It will be interesting to see what unfolds next quarter and how both companies will dodge and weave through this messy maze. It’s only a matter of time that the domino’s will fall and other states will begin to adopt AB5 (New York is close on CA’s heels) and at that point, we may as well go back to the taxi business model (with upgraded tech, of course).

I’d love to hear your thoughts on this topic!  Send me a comment below!

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  • Will Pasternak
    September 20, 2019

    Elena we should discuss this on the podcast because LYFT also fails the test for this independent contractor thing. This takes us all back to the days when the TEAMSTERS were formed to protect drivers. If you want to spark a national movement to help unite UBER and LYFT drivers I will be your spokesperson.

    • Elena@sidegigcentral.com
      September 20, 2019

      Will, thanks so much for your comment here! I agree, this is murky legislative territory and the folks that are impacted the most are the drivers.


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