Study: Most Independent Contractors Will Benefit From New California Law

(CN) – In a study of a landmark California labor law detested by business groups and gig economy titans, researchers concluded Tuesday that the union-backed bill will cover a majority of independent contractors and affect more than just Uber and Lyft drivers.

Uber and Lyft drivers rally at a park near Los Angeles International Airport on Wednesday. (AP photo/Damian Dovarganes)

According to the University of California, Berkeley study, the contentious law will apply to 64% of independent contractors in the state. Researchers say Assembly Bill 5 will largely benefit low-wage occupations, namely truck drivers, ride-hail drivers and retail workers.

“We found that the most vulnerable workers will be protected under AB 5 because they are covered by the ABC test,” said Ken Jacobs, chair of the UC Berkeley Labor Center. “Historically, these are the workers who were most likely to be misclassified, but now, it will be easier for them to access the protections they are entitled to – including minimum wage, overtime, workers’ compensation and unemployment insurance.”

The bill by Assemblywoman Lorena Gonzalez, D-San Diego, codifies the game-changing labor standard established by the California Supreme Court in the 2018 ruling Dynamex v. Superior Court.

In a win for labor unions, the high court ruled a business must meet a three-prong standard referred to as the “ABC test” in order to classify a worker as an independent contractor. Companies must show they do not directly control the worker, the work falls outside its usual course of business and the worker is “customarily engaged in an independently established trade.”

In response to the ruling, Gonzalez teamed up with a host of labor unions and pushed AB 5 through the Legislature. Supporters included the Service Employees International Union, California Labor Federation and State Building and Construction Trades Council. Lawmakers approved AB 5 during the last week of the session and Gov. Gavin Newsom, a Democrat, quickly signed the bill, making the ABC test the law as of Jan. 1, 2020.

The court’s decision and resulting legislation pose a giant risk to the business models of various industries, including tech companies that have avoided paying employee benefits by classifying workers as independent drivers.

Gig economy giants like Uber, Lyft and Doordash have promised to spend $90 million to qualify a ballot measure and give voters the opportunity to overturn AB 5. In hopes of collecting the over 600,000 voter signatures needed to place the measure on the November 2020 statewide ballot, the companies are promising to extend benefits like earnings guarantees, reimbursement for certain expenses and health care subsidies.

In addition to the tech companies, two owner-operator truck drivers along with the California Trucking Association are challenging AB 5. In a court filing in the Southern District of California on Tuesday, they said the ABC test violates the Commerce Clause and the Motor Carrier Safety Act.

Critics have painted AB 5 as too rigid and accused the Legislature of “picking favorites” with exemptions given to certain professions like real estate agents, lawyers, doctors and insurance agents.

Gonzalez and the bill’s supporters defended the exemptions by noting they were primarily granted to high-earning occupations. Gonzalez and the supporters said they are open to more negotiations once the Legislature resumes in January.

In Tuesday’s study, researchers estimate that the law will apply to 27% of contractors who are able to do things like set their own rates and hours, such as hairdressers, photographers and construction workers. The study found the law won’t apply to 9% of California independent contractors, primarily high-income workers.

“It is important to note that the most common occupations that the ABC test will not apply to, like lawyers and doctors, tend to earn the highest wages,” said Sarah Thomason, UC Berkeley Labor Center researcher. “Conversely, those who usually earn lower wages, such as retail and childcare workers, are included under the ABC test.”

California’s debate over labor classification is also playing out on the national stage as U.S. senators and Democratic presidential candidates Elizabeth Warren, Bernie Sanders and Kamala Harris have all come out in support of AB 5. Sanders introduced a similar bill in Congress while Warren called AB 5 “straightforward and simple” and ripped the gig economy for fighting against the new regulations.

“This is a crucial moment in the fight for workers in this country. It’s a time for us to show whose side we’re on. All Democrats need to stand up and say, without hedging, that we support AB 5 and back full employee status for gig workers,” Warren wrote in an op-ed for the Sacramento Bee.

The UC Berkeley study used 2017 data from an American Community Survey that asked Californians between the ages of 18-64 various employment questions. Researchers placed workers into three categories – ABC test applies, ABC test applies except when strict criteria are met and ABC test does not apply – and calculated the proportion for each category.


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