A bill before the California state senate could devastate the gig economy.
The bill, known as AB5, has already passed the state assembly. It is scheduled to be heard by the senate’s Labor, Public Employment and Retirement committee on July 10. If it passes the senate—which, like the assembly, is controlled by Democrats—and is signed by Democratic governor Gavin Newsom, it will become law.
The bill makes it harder to classify workers as independent contractors by codifying an employment test from a groundbreaking 2018 California Supreme Court decision. This “ABC” test says that for a worker to be a contractor rather than an employee, they must meet three conditions: A) they must be “free from the control and direction of the hiring entity” in their work; B) must perform work outside the “usual course of the hiring entity’s business;” and C) must usually be engaged in an independent job or business of the same nature as the work they do for the hiring entity.
Under this test, it’s possible that gig economy workers who are currently classified as independent contractors—think Uber drivers and DoorDash couriers—would be considered employees. For instance, how do Uber drivers perform work outside the “usual course” of Uber’s business when Uber is in the business of providing rides?
It’s hard to overstate how big a deal this could be for the gig economy. Reclassifying contractors as employees would give those workers all the protections of traditional employment, which under US labor law are not afforded to contractors: social security, unemployment insurance, health benefits, a minimum wage, the right to form a union. It could be hugely expensive to companies, which would have to cover payroll taxes and workers compensation insurance.
Quartz worked with Second Measure, which analyzes billions of anonymized credit and debit purchases, to see how exposed certain gig economy companies are to California’s potential new law, based on the share of their US sales in the state. Second Measure pulled data on six companies: Uber, Lyft, DoorDash, Grubhub, Instacart, and Postmates. (Uber Eats is broken out separately from Uber’s rides business.)
What stands out from the data is how dependent Postmates is on California. As of May, 41% of Postmates’ US sales were attributable to California, according to Second Measure, down slightly from 46% a year ago. A Postmates spokesperson said in an email that the company is committed to working with Newsom and labor leaders on legislation that establishes “a new class of worker benefits with worker flexibility.”
DoorDash, a Postmates competitor, was similarly dependent on California a year ago, but has dramatically reduced its share of sales in the state over the past 12 months, as its business has grown throughout the US.
In ride-hailing, Lyft does a bigger share of its business in California than Uber does, with 24% of US sales in the state in May. Lyft has also slightly reduced that share over the past year (it was 26% in June 2018). It’s worth remembering, when looking at this data, that California makes up an even smaller share of Uber’s global sales, since the company operates its rides service in 63 countries. Lyft, by contrast, only operates in the US.
Davis White, Uber’s director of California public affairs, said in an email that he had nothing to share on the potential business impact of AB5, as the company has “no plans to re-classify drivers.”
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