The significant move by California in defense of the precarious nature for those working in gig economy came as the state Assembly passed a bill on May 29, 2019, which makes things more complex for an employer to classify a worker as an ‘independent contractor’ instead of as an employee. Officials were concerned that the current legislation allows companies to side-step state and federal labor laws. To be approved, the bill needs to passed by the California state Senate.
The way that a worker is classified by a company is of great significance globally. In the U.S., the distinction between an independent contractor and an employee carries implications for both parties. Companies who use ‘independent contractors’ can avoid paying taxes for a contractor’s Social Security, Medicare, unemployment benefits, and health insurance premiums, plus other employment benefits.
According to the BBC, the gig economy can be defined as “”a labour market characterised by the prevalence of short-term contracts or freelance work, as opposed to permanent jobs”. Beyond this the term polarizes, depending upon a given view of employee relations. For some, more often on the employer side, it describes a working environment that provides flexibility with regards to things like employment hours; on the other hand, it is a form of exploitation with very little workplace protection.
The reason why the latter view about the gig economy is more often held up, and which the Californian bill aims to prevent, it because the flexible worker is invariably on low pay and has little option not to work for a single employer and is bound by the rules of that employee and, from most perspectives, is an employee.
Many workers in the gig economy are starting to push for better pay, rights and permanent contracts, as seen with the claims made by striking Uber and Lyft workers during May 2019.
The California bill (AB5) expands on a California Supreme Court decision in 2018 called Dynamex. According to Vox, the ruling and the bill instruct businesses to use the so-called “ABC test” to assess whether a worker is an employee. This would mean, to hire an independent contractor, a firm must prove that the worker is free from the company’s control; plus the worker doing work that is not central to the company’s business; and that the person has an independent business in that industry.
If a worker does not meet all three of those conditions, then they have to be classified as employees. This will have big implications for Uber drivers, many Amazon employees, those working for companies like Instacart, DoorDash, GrubHub, and many people working for local businesses.