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Did the California Governor Just Kill Uber and Lyft?

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California Governor Gavin Newsom has finally signed a new law that would really help the gig economy. Assembly Bill 5 (AB5) was introduced by Assemblywoman Lorena Gonzalez in January with the intention to codify a recent State and Supreme Court decision into law. The details are complicated, but the intent is to ensure that employers are able to prove that their workers are, in fact, independent contractors. This new law would require a more stringent test to be applied. This test is known as the ABC test and would ensure that employees aren’t working for the company full time. With a huge package of amendments added before its passage through the Senate last week, the bill has been signed by Newsom.

“Assembly Bill 5 is a landmark legislation for workers and our economy. A next step is creating pathways for more workers to form a union, collectively bargain to earn more, and have a stronger voice at work.”

Gavin Newsom, Governor of California

Not everyone is happy with this new bill. In fact, Uber, Lyft, and DoorDash have already committed a combined $90 towards opposing AB5. Their opposition will be against its implementation rather than the bill’s passage, of course. In addition, Uber has toyed with the idea of a ballot. This would, of course, be an attempt to undermine the law.

“Looking to the future, we recognize the many attempts by Lyft and Uber to avoid compliance with the law and ignore the voices of drivers. Our fight continues. We ask the state of California to enforce AB 5 in order to protect workers. We will continue to organize in order to build the independent drivers union we need to have a real voice at the table.”

Gig Workers Rising

Where did all of this start? Truck drivers argued that their companies intentionally misclassified them as contractors, in order to save money. The rule, however, is pretty clear. Workers are company employees if the company controls how they do their work. Or if that work is core to the company’s business. Which is bad news for companies like Uber and Lyft because their main business is driving. Uber’s argument, however, is saying that their business is actually coordinating driving trips. Not driving itself.

Uber and Lyft have brought convenience to many of us who need a quick way to get around town. But if in doing so, they’re exploiting labor, then the model doesn’t deserve to survive. With that in mind, the bill itself creates some confusing incentives. Will gig companies gravitate toward hiring mostly workers who can contribute well over 30 hours a week, to avoid responsibility for all those part-timers? Or will they do the opposite, limiting hours to keep more drivers part-time so they won’t have to provide so many full-time perks? 

Ride-hailing companies propose solving this problem with a compromise. Retain drivers as contractors, but also provide them with a minimum wage. Researchers and some lawmakers have been experimenting with alternative setups that would make injury insurance, paid leave and other benefits “portable” and prorated. Each firm would contribute to a fund that would be proportionate to an employees labor.

What does this mean for the gig economy? What will this mean for your favorite ride-sharing company? This is unchartered territory. On one hand, I want to see this service continue. But on the other hand, is it working? And by that, I mean, are we exploiting drivers? If the answer is yes, then something has to give. Don’t you agree?

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