At this point in time, it appears as if the California legislature created another monster. AB 5 will most certainly work its way through the California courts. It’s doubtful that the law will last in its present form.
The gig economy is taking another hit. On September 18, 2019, California Governor Gavin Newsom signed Assembly Bill 5 (AB 5) into law. It requires most companies in California to reclassify freelancers (gig workers) as full-time workers who are eligible for workers’ compensation, unemployment and minimum wage protection of at least $12 per hour. The law takes effect on January 1, 2020.
Gig workers and freelancers are increasingly worried about losing a big part of their income, and there are signs that it’s already happening. Companies just aren’t hiring California freelancers for work that they were routinely hired for in the past. It’s happening now because the law is retroactive. Some freelancers are exempt from the law, but most are not.
One Californian who his been hit by reclassification is a 36-year-old who works as a tech programmer for a telecom during the day and freelances as a cartoonist at night. There are times when half of his income is earned as a freelance cartoonist. Potential projects have dried up quickly for him as soon as existing and potential future clients learned that he lived in California. He complained that he would get hired for jobs and later, the company that hired him would say that they were no longer interested in the project. Suddenly, a person who he’d never spoken with would contact him and tell him that they’ve changed direction. He said that he’s seen a 40% decrease in his freelance business since AB 5 passed.
If companies do hire the cartoonist for freelance jobs, he’s limited by law to 35 jobs per year per client. After that, clients must put him on the payroll as an employee. What comes to issue for him is that 35 submissions isn’t a large number for regular a contributor. He’s concerned that he will hit his 35 mark and not get hired anymore.
Companies like Uber and Lyft are particularly worried about AB 5. According to workerscompsacto.com, if Uber and Lyft are eventually forced to classify their drivers as employees, their drivers will receive unemployment benefits, social security, minimum wage, overtime, sick leave, and workers’ compensation insurance. They’ve launched their own lobbying and legislative effort known as the Protect App-Based Drivers & Services Act. Its sponsors want it on the ballot in November of 2020. The proposed legislation would give drivers for app-based transportation network companies and couriers guaranteed earnings of a minimum of 120% of the minimum wage along with other benefits and protections. The measure would allow them to set their own work hours and remain classified as independent contractors. It also appears as if franchisors could get slammed by AB 5. Franchisees might also be reclassified too. The International Franchise Association asked that franchisors be excluded from AB 5. Their request was summarily denied.
It’s possible that California’s legislature was short-sighted. AB 5 has impacted thousands of businesses that previously hired freelance workers. A genuine question has been raised as to what the legislature’s intent was in passing AB 5, especially when most freelancers work independently by choice. Businesses in New York and New Jersey are now afraid that the same thing could happen to them. New Jersey already has restrictive worker classification laws. Proposed legislation there would raise a presumption that workers are employees unless all of the following exist:
- The person is free from control and direction in the performance of their job.
- The job performed is outside of the usual and customary of business for the entity.
- The individual is “customarily engaged in an independent trade, occupation, profession or business of the same nature as that involved in the work performed.”
The law appears to have affected writers first, and they’re talking about the difficulties that they’re having getting work. Freelance job postings are now even excluding writers from California. Media and technology are also profoundly affected. Freelancers are being advised to set up a Subchapter S corporation or limited liability company, get a business license, open a separate business bank account, obtain a separate business email account and use written contracts.
Many people who are directly or indirectly affected by AB 5 believe that the law will be amended. Governor Newsom has already noted that changes will be made in the law if problems arise. One legislator characterized AB 5 as “a good first try.” Business owners disagree. One such owner remarked that you can’t have a “one size fits all. You can’t take a broad brush approach on this,” he said.
At this point in time, it appears as if the California legislature created another monster. AB 5 will most certainly work its way through the California courts. It’s doubtful that the law will last in its present form. Even if substantial amendments are made, the federal courts might just chew the legislation up and spit it out on commerce clause grounds.