Don’t follow California’s lead on labor issues
Few state laws have received the kind of national attention given to California Assembly Bill 5, which bans Uber, Lyft, DoorDash and other companies from using independent contractors. The law, which went into effect in January, has become a national rallying cry for progressive activists, who demand that other legislatures and even Congress pass something similar.
For instance, Virginia Gov. Ralph Northam this year signed a law that defines all workers as de facto employees who are eligible for benefits — “unless such individual or his employer demonstrates that such individual is an independent contractor” under the tax code. It doesn’t go as far as AB 5, but Virginia lawmakers are expected to push for AB 5-like expansions.
Yet before other states jump on this employee “anti-misclassification” bandwagon, they need to pay more attention to how AB 5 has played out in California. The legislation stems from a 2018 California Supreme Court decision, known as Dynamex. It involved a delivery service that had reclassified all of its drivers from permanent employees to independent contractors.
The court concocted an “ABC Test” that employers must pass before they can use contractors rather than employees. In essence, freelance workers cannot provide core job functions, must actually operate an independent business, and must not be under the control of the company. The legislature could have taken any number of approaches, but it instead chose to codify the decision.
AB 5′s supporters depicted the law as a great victory for working people. Businesses would no longer dump workers in favor of freelancers. Contractors would receive permanent employment status and a new suite of benefits. In his signing statement, California Gov. Gavin Newsom said the law “is an important step” in halting the “hollowing out of our middle-class.”
The actual results should surprise no one. Instead of going on a hiring spree, employers began laying off their contractors in droves. Instead of getting new protections, workers received fewer work opportunities. In the midst of a pandemic, the new law limited many people’s incomes. As Newsom urged consumers to stay at home, the law made it more difficult and costly for them to receive vital deliveries.
Although app-based transportation companies were the bill’s targets, it harmed workers in myriad industries. The media published endless stories of theater companies that suspended operations, musicians who lost gigs, freelance writers and photographers who had to forfeit their assignments. Lawmakers in other states may have missed the ensuing political fracas, which sent California officials scurrying to undo the damage.
Legislators filled the original law with exemptions for politically powerful industries, including physicians, real-estate agents, attorneys and insurance agents. Recently passed follow-up legislation added two dozen additional ones, which means that more than 100 industries received carve-outs from the law’s mandates. The ride-sharing companies haven’t fared as well in court and were hours away from suspending operations in the state before getting a last-minute stay from implementing AB 5.
Uber, Lyft and DoorDash have qualified a ballot measure for the Nov. 3 general election that would classify these drivers as independent contractors. If voters approve Proposition 22, then California will have a “landmark” labor law that applies to virtually no one.
Studies confirm that app-based delivery drivers generally enjoy their flexible schedules and don’t want to work solely for these firms. A new study from Seattle shows that drivers there earn about a third more than local taxi drivers.
Based on these experiences, it’s hard to see who AB 5 is expected to help. It’s even harder to understand how any lawmaker — in California, Virginia or other state — can still champion this approach as a means to improve the lot of workers.
Image credit: SFIO CRACHO