California’s AB5 Bill for Uber, Lyft, & Gig Economy

by | Oct 1, 2019 | All Up In Yo' Business

California passed a new bill this week which is being called “The Uber law” that could have major impacts for a lot of businesses and workers.

So what is the Uber Law and what does it mean?

The bill focuses on the classification of “gig” workers. It’s a term that they are using for people like Uber, and Doordash, Lyft drivers, and others working for similar on-demand services and apps. The point of the bill is to prevent these companies like Uber and Lyft from misclassifying their drivers as independent contracts instead of employees.

Companies love to hire contractors over employees because contractors are generally less expensive than employees.

The difference between employees and independent contractors. 

As an employee, your boss can set your schedule,  tell you what kind of work to do and exactly when, where, and how to do it. They typically give you tools and supplies and have a lot of control over your day-to-day work. Your boss also has to abide by minimum wage laws, provide workers compensation in case you’re injured on the job, give you meal and rest breaks, and you may get unemployment benefits if your job is terminated.

Contractors, on the other hand, are essentially independent business owners. They set their own prices, set their own work schedules, determine the work they do or don’t do, and supply their own tools and equipment. The contractor is responsible for herself if she is injured on the job and not entitled to any coverage from the employer.

If the Uber Law in California is approved and it actually becomes law, then a worker in California will have to be treated as an employee unless three qualifications are met:

  1. The worker is free from control and direction of performing the work.
  2. The work provided is outside the usual scope of the business for which the work is performed.
  3. The worker is customarily engaged in an independent business or occupation.

If the bill becomes law.

If this bill passes and becomes law, then Uber, Lyft, Doordash, Postmates and many businesses like them, small or large, may have to start treating all their workers as employees. This could be a huge shift in their business models and a huge cost and expense for them.

Though this shift and this change could have a trickledown effect on the drivers and the consumers. These companies are probably going to have to make changes to how they let their people work. For example, limiting how many drivers can be “on the clock” at any given point in time or certain times throughout the day. Because of minimum wage laws that will now be applied to their employees, these companies may have to begin raising their rates to remain profitable. If Uber pays their driver $15 an hour, for example, then the driver has to bring in at least $15 an hour in fares in order for Uber to make a profit off the rides.

If approved, the Uber Law will only apply to businesses that operate in California. But even for us outside of California, this is a pretty good indicator that change is coming. It will not be long before other states catch on and consider similar legislation. Sure enough, it will eventually spread out in some shape or form into other states. So even if your business is not in California, it is an important bill to be aware of because it’s effects can be broader reaching.

Rant time

I was really excited when I heard this bill had been passed. I cannot tell you the number of conversations that I have that go like this:

Me: “I don’t think that’s right. You shouldn’t do it that way.”
Client: “But everyone else in my industry does it that way and they’re fine.” Or, “All the big companies are doing it and they seem to be fine so I’m going to do it too.”

You’ve heard this plenty of times growing up, I’m sure: If all of your friends jumped off a bridge, would you jump off the bridge? Of course not! Well, that same rule applies here, too.

JUST BECAUSE EVERYONE ELSE IS DOING IT, DOES NOT MAKE IT CORRECT! Just because Uber and Lyft have been treating all their drivers as contractors this whole this time does not necessarily mean it was correct. It just means the law hasn’t dealt with it yet. This is especially true for new industries, services, and developments. If you’re launching a brand new service that has never been done before, chances are there aren’t a whole lot of laws that apply to that service. However, the law will eventually catch up and you’ll have to abide. So if you want to get into a new industry, you can’t just look at what everyone else in that industry is doing. Especially if it’s a brand new industry because no one in that industry knows what they are doing either. They or their lawyers are making their best guesses based on the current law which doesn’t include that industry.

Take away
Do not rely on what everyone else is doing for affirmation that what you’re doing is correct.




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