DANIEL THWAITES — Next year presages big changes for California’s so-called “gig economy” (a labor market characterized by short-term and independent contracts). This September, Governor Gavin Newsom signed Assembly Bill 5 (AB5), a controversial law that establishes a relatively high burden for employers seeking to classify their workers as independent contractors.
In the past, courts relied on the 11-point Borello analysis, established in a 1989 California Supreme Court case bearing that name. But in last year’s Dynamex decision, the Court rejected Borello in favor of the ABC test. The new standard begins with the presumption that a worker is an employee and permits an alternative finding only when a worker; (A) is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract or the performance of the work and in fact; (B) performs work that is outside the usual course of the hiring entity’s business; and (C) is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
AB5 effectively codifies Dynamex, and while it does not take effect until January 1, 2020, its consequences are already manifest. Tony West, Uber’s Chief Legal Officer has put out a statement clarifying that the company plans to continue treating drivers as contractors. He claims Uber can pass the stricter test. At the same time, the company has (together with Lyft and DoorDash) pledged $90 million in support of a ballot initiative that would exempt them from AB5.
While AB5 contains a host of exemptions—for lawyers, accountants, physicians, and others—some analysts are nonetheless describing the bill as an existential threat to the gig economy. The L.A. Times has reported that Uber and Lyft’s labor costs could increase by as much as 30 percent. For a company like Uber, which already fails to make profits, those costs could mean higher prices for riders. Gig workers may also lose flexibility and opportunities for part-time work. And yet, the labor and employment protections drivers will now enjoy are significant. Uber will be required to pay minimum wages, overtime compensation, and workers’ compensation.
Of course, ridesharing apps are unlikely to go gently into the night. Uber has been waging legal battles across the country for years as to its classification of drivers. A few days subsequent to AB5’s signing, the business reached a settlement in O’Connor, et al. v. Uber Technologies, Inc., a California class action that has been litigated since August 2013.
Labor law attorney Shannon Liss-Riordan, a partner at Lichten & Liss-Riordan, and lead attorney in O’Connor, has taken the lead in various cases against Uber across the country. In interviews, she has remarked, “I have clients who are Uber drivers that are sleeping in their cars because they cannot afford the basic necessities, they can’t afford a place to live.” Indeed, Liss-Riordan has taken her advocating for workers to the political arena; she is currently running to be the junior senator from Massachusetts in 2020.
Due in large part to arbitration clause issues, the O’Connor settlement was relatively small, with only $20 million available to a specific class of California Uber drivers, unbound by arbitration (either because they validly opted out or because Uber has no record of them accepting an agreement). Consequently, the original class of 385,000 was reduced to 13,600. However, Lichten & Liss-Riordan have already filed a new complaint, which seeks to take advantage of AB5’s passage. It remains to be seen how this case will fare in California’s now friendlier legal environment.
