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California Attempts to Reclassify Gig Economy Workers

In the fall of 2019, California passed a controversial law known as Assembly Bill 5 (AB5). The law attempts to restrict how workers are classified in the gig economy, requiring some companies to reclassify their independent contractors as employees. Unlike employees, contractors in the gig economy do not receive a salary, hourly wage, or benefits. Companies such as Lyft, Uber, Instacart, Postmates, and DoorDash rely on independent contractors. According to the Internal Revenue Service (IRS), independent contractors perform services that can't be controlled by the affiliated company (what will be done and how it will be done). For example, if you drive for Lyft, you set your work hours, locations, and provide a vehicle to engage in the ride sharing business. Many Lyft drivers also drive for Uber and switch the apps off and on to take advantage of promotions and peak activity for financial gain.

Lyft and Uber both became publicly traded companies earlier in 2019. Both companies noted that, if there was any realignment of their business model forcing them to classify their workforce as anything other than independent contractors, their profitability would be negatively impacted. Therefore, Uber and Postmates filed a federal lawsuit challenging the fairness of AB5 and stating they wish to defend the "fundamental liberty to pursue their chosen work as independent service providers and technology companies in the 'on demand' economy." The companies further argue that AB5 is focused on changing the business model of "modern app-based" companies, but does not apply to other gig economy companies. AB5 is a follow-up to a California State Court decision on Dynamex that implemented a stricter test to determine who qualifies as an independent contractor. The author of the bill, Assemblywoman Lorena Gonzalez, a Democrat from San Diego said, "The one clear thing we know about Uber is they will do anything to try to exempt themselves from state regulations that make us all safer and their driver employees self-sufficient." Many business ethics disputes are resolved through litigation. Lyft, Uber, Instacart, Postmates, and DoorDash have pledged $110 million for an alternate initiative on the 2020 ballot that would provide some benefits and wage guarantees to independent contractors.

Many independent contractors do not support AB5, as shown by an Uber driver from Sacramento who posted, "This independent contractor arrangement gives me the peace of mind that I can do what is necessary to take care of my family on my own schedule." As the Wall Street Journal headline noted, "Gig Companies Need Their Day in Court" to settle these issues.

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