Californian lawmakers hope to set a precedent that will force ride-share companies, such as Uber and Lyft, to reclassify drivers as employees — a move that could have trickle-down effects in other countries, including Australia.
Assembly Bill 5 (AB5) on Tuesday passed the vote with an overwhelming majority of 29 to 11 in the Californian State Senate, classifying gig-economy drivers as employees, not contractors.
The vote is also expected to pass in the State Assembly to become law.
How the bill plays out could affect how the other 63 countries Uber operates in will regulate the gig economy within their borders.
Australia’s Fair Work Ombudsman (FWO) finalised its two-year-long investigation into Uber in June, ruling the level of freedoms offered to drivers means they are not employees.
The ride-sharing giant is also facing a class action from over 6,000 taxi and traditional hire drivers for losses in their industry, while Deliveroo is also battling a court case with a former employee over sham contracting.
The latest amendment to the AB5 legislation quoted the California Supreme Court’s 2018 considerations on obligations relating to minimum wage as a major influence in its decision.
Specifically, it cites the ruling’s concern over the “unfairness” of misclassification on workers without workplace protections and employers competing in the same space with tighter restrictions.
“The misclassification of workers as independent contractors has been a significant factor in the erosion of the middle class and the rise in income inequality.
“This act restores these important protections to potentially several million workers who have been denied these basic workplace rights that all employees are entitled to under the law.
“Nothing in this act is intended to diminish the flexibility of employees to work part-time or intermittent schedules or to work for multiple employers,” the amendment reads.
Major ride-share companies Uber, Lyft and DoorDash are planning to push back against the bill, offering a compromise of increasing the minimum wage for drivers.
In a statement, Uber’s chief legal officer Tony West argued the AB5 legislation does not target Uber or other ride-sharing services.
“Contrary to some of the rhetoric we’ve heard, AB5 does not automatically reclassify any rideshare drivers from independent contractors to employees,” he said.
“AB5 does not provide drivers with benefits, nor does it give drivers the right to organize. In fact, the bill currently says nothing about rideshare drivers.”
West said Uber, Lyft and DoorDash’s compromise would introduce benefits employees under the AB5 legislation would gain, including sick leave, injury protection, and “a voice in the decision that affect their livelihoods”.
The minimum wage of US$21 will only be offered to drivers for the time they have a passenger in the car which, according to a 2018 study, only accounts for 63% of the distance American drivers will travel within their working hours.
Both the bill and the ride-share companies’ proposal are expected to drive prices up for passengers, affecting profits and viability of new competitors rising up in the gig economy.
“So as you can see, we are not arguing for the status quo,” West said.
“Our proposal avoids the potential harm of forcing drivers to be employees, whether or not they want to — and the vast majority tell us they don’t want to be.”
In a statement, California Labor Federation executive secretary-treasurer Art Pulaski argued the importance of the AB5 legislation for the working class.
“AB5 is a powerful counter to the corporate greed and rampant exploitation that’s driving inequality across our state in emerging and traditional industries, alike,” he said.
“From the beginning, working people drove the campaign to pass AB5. They are demanding real change, which includes a strong, worker-led union on the job.
“They’ve led this fight every step of the way, ensuring the legislature heard the voices of real people to counter the army of high-priced lobbyists enlisted by big corporations.”