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California: Gig Workers are Employees

The state is considering a bill to clarify that gig workers should not be classified as independent contractors

Kris LaGrange's picture
May 29, 2019

One of the fastest growing sectors of the US economy is gig jobs. These are people that work for companies like Uber, Lyft, DoorDash and Amazon Flex. Since these gig economy jobs burst onto the scene, local governments have rushed to ensure that their laws keep up with the changing nature of the work.

For example, in New York City, taxi drivers have complained that while they go through extensive background checks and shell out hundreds of thousands of dollars for a taxi medallion, Uber drivers have almost no upfront costs and have driven down prices and demand for the yellow cabs.

Another issue surrounding these jobs is that the companies classify their workers as independent contractors. This means that gig companies don’t have to pay unemployment insurance, workers compensation, or pay for employees’ health insurance, nor do they have to adhere to the state’s labor codes and minimum wage laws.

With these jobs growing, California has decided to take action. A bill, SB 5, that is making its way through the state legislature would expand rights and benefits to workers now labeled as independent contractors by establishing an ABC test. This three-part standard was put forth by the State Supreme Court in a ruling last year to determine if a worker is really an independent contractor. Thus, for gig economy companies to classify someone as a contractor they would need these criteria to apply:

  1. Control: The company hiring the worker does not direct how the work is performed.
  2. Scope: The work is in a field different from the hiring company’s business.
  3. Independence: The worker runs a business doing the same kind of work performed for the hiring company.

For someone who is driving for Uber, this is an important step. Gig economy workers rates are set by the company, not by the contractor, and they can be deactivated (aka fired) at any time. While these companies tout the flexibility of work, the reality is that to make a decent wage you are forced to drive during certain times of the day and many companies require a fixed number of jobs to be done to receive the best rates.

Gig economy companies also need to deal with the fact that most of their workers are not doing this as a side business, rather they are doing this as their main source of income. Since this is a full-time job for many people, California wants to make sure that these companies are treating their drivers like full-time employees, not independent contractors.

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