QState Report

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A New Kind of Gig

A new California law turns
'contractors' for Uber, Lyft and
other service firms into 'employees,'
but the impacts are unclear

By JACOB FISCHLER
abor advocates m California
may have won passage of a
law meant to force gig-econo-
my companies to classify their
front-line workers as employ-
ees instead of independent
contractors, but their victory
has only intensified the fight over the issue
as companies like Uber and Lyft pursue
other policy avenues.
Those companies and others, includ-
ing food delivery services DoorDash and
Postmates, are still negotiating with Gov.
Gavin Newsom over how the law will be
implemented and enforced. They've also
pledged a total of $90 million to fund a bal-
lot measure campaign next year to establish
a framework that gives drivers some rights
without making them full employees.
"We're just now getting to the start of
the second act," says Lane Kasselman,
managing partner of California consult-
ing firm Greenbriar and former head
of communications for Uber. "The real
making of the sausage I think didn't hap-
pen over the past three months or four
months - that's what happens over the
next year and into 2020."
The law codifies and expands a state
Supreme Court ruling requiring a three-
part test, known as the ''ABC test." Under it,
the only workers who qualify as independent
contractors are those fitting all of a trio of
criteria: being free from the company's con-
trol, doing work outside the company's usual
business, and being "customarily engaged"
in the type of work they're being hired for.
Otherwise, the worker is an employee, with
the benefits and protections that classifica-
tion carries.
Most of the debate about gig-economy jobs
has focused on the second test, that workers
are outside a company's core business.
Companies in the so-called gig econo-
my - where clients connect with workers
for one-off tasks like a ride, food delivery or
odd job - generally represent themselves
as being in the technology industry. The
companies developed platforms for users
to connect with drivers or home-cleaners or
dog-walkers. The actual driving or clean-
ing or dog-walking is not a core part of
their business, they argue, which then al-
lows them to classify the workers who do
those tasks as independent contractors.
Unions and their allies say it's ridicu-
lous for companies like Uber and Lyft to
assert that drivers for their services aren't
employees.
The law, known as AB-5, takes effect
Jan. 1, but Uber's chieflegal counsel, Tony
West, says the company doesn't plan to
reclassify its drivers then. And it hasn't in
three other states with similar tests: Con-
necticut, Massachusetts and New Jersey.
Even in California, where the 2018 Su-
preme Court decision already established
the test as valid in unemployment insur-
ance cases, the company is operating with
independent contractor drivers.
Supporters of the California law hope
it will actually lead to changes in worker

26 OCTOBER 7, 2019 I CQ
Ill .STATES
classification. The law allows enforcement
from the state's attorney general, labor com-
missioner and employment tax regulator,
as well as from city attorneys. Those provi-
sions, combined with the state's history of
strong labor enforcement, could separate
the California version from what's been en-
acted in other states.
Nicole Moore, a part-time Lyft driver in
the Los Angeles area and a member of the
organizing committee of Rideshare Drivers
United, a drivers group that supports the
law, says it's critical for ensuring benefits like
minimum wage, workers' compensation,
family leave and the right to form a union.
"We have to have the power of the law
behind us," she says. "That's what AB-5 has
done. It gives drivers a leg up."
The companies argue the law would limit
the flexibility they consider a major reason
drivers work for them in the first place. Un-
like under the current system, where drivers
can choose when and where they drive and
for either Uber, Lyft or both, the companies
might schedule shifts and assign drivers a
certain area at a certain time.
There is nothing in the law "to prevent
them from allowing their drivers the exact
same flexibility they have now," says Steve
Smith, the California Labor Federation com-
munications director. Companies use that
argument "to scare drivers," he says.
But as a practical matter, the companies
likely wouldn't allow drivers to work simul-
taneous shifts,,which is a common practice.
West confirms that.
"They would not be able to dual-app in
the same way th.it they dual app-now be-
cause clearly they could only work for one
employer at a time," West says.
Continued Talks
Even after the legislature passed the bill
on Sept. 11, Newsom, a Democrat who sup-
ported the proposal, continued i1egotiating
with industry representatives in a separate
effort to establish a new framework that
would allow workers to organize while keep-
ing their flexibility over hours and location
that independent contractor status provides.
The talks represent the balancing act fac-
ing Newsom as he juggles the heavily Demo-
cratic state's strong labor force with the tech
industry that drives its booming economy.
"The governor has been pretty clear that
28 OCTOBER 7, 2019 I CQ
he understands labor's pos1t1on and sup-
''
ports it. But he also very clearly Ul)<ierstands
that the economic engine in this state very
heavily relies on the innovation that comes
We'reju~t from companies like Uber and its competi-
now getting tors and other similar business," Kasselman
to the start of says. "There is no choice but to find an alter-
native solution."
the second West says such an alternative can already
act. The real be found in the company's European opera-
makingof tions. There, drivers remain independent of
the company but have access to a social safe-
the sausage I ty net the company helps pay for through
think didn't a partnership with French insurance firm
happen over AXA, West says.
A Lyft spokesman says about 325,000
the past three drivers worked for the company in Califor-
months or nia in 2018, out of about 2 million total in
four months the U.S. and Canada. Uber declined to give
specific figures other than to say 3.9 million
- that's what drivers were active globally in the fourth
happens quarter of 2018. In a press call, West refer-
over the next enced "over 200,000 drivers in California."
In a signing statement on the bill, Newsom
year and into praised both labor and the tech industry. He
2020.'' said a next step after signing the bill would be
- LANE KASSELMAN, giving more workers the ability to unionize
FORMER UBER "while preserving flexibility and innovation"
HEAD OF COMMUNICATIONS - a nod to both labor and the tech companies.
Newsom added he planned to convene
legislators, labor and industry to move to-
ward that goal.
"We take him at his word that he's going
to be fully committed to helping us get a
solution that works for labor, that works for
drivers, that works for innovation in Califor-
nia," West says.
Court Challenges
Labor advocates, fresh off the victory of
seeing the law signed, aren't in a mood to
compromise.
An alternative to the employee-contrac-
tor binary isn't necessary because drivers
for companies like Uber and Lyft clearly are
employed by the companies, says Larry En-
gelstein, the secretary-treasurer of an East
Coast branch of the Service Employees In-
ternational Union.
"I don't think the passage of the statute it-
self is the end of the story," Engelstein says.
"What has to follow is the will of the govern-
ment, as well as the workers themselves, to
take action to make sure it's enforced."
Lorena Gonzalez, the Democratic Cali-
 Johan Nijman is a for-hire driver who runs his own service and also drives for Uber on the side in New York City.
fornia Assembly member from San Diego
who sponsored the bill, says Uber's position
could also lead to criminal enforcement.
"Ultimately, when companies violate
minimum wage laws, when they basically
violate labor laws, there's a point where it
becomes criminal action," she says. "So it's
up to Uber if they want to really just ignore
the law, then I think there's going to be ulti-
mately consequences and I hope that there
are people out there who pursue them."
The industry agrees the issue will likely
play out in court.
West told reporters on a conference call
last month he expects legal challenges.
Though he thinks Uber can pass the test, he
said an arbitrator or judge would ultimately
decide if the company's policies comply with
the law.
A driver or a municipal or state attorney
will surely challenge the company's posi-
tion. A late amendment to the law allows the
state's attorney general and local prosecu-
tors to sue over it, too.
Lacking an agreement with Newsom and
legislators, Uber and Lyft have each put $30
million into a campaign account to pass a
ballot measure in 2020. DoorDash says it
will contribute another $30 million, setting
up the nascent campaign as one of the most
expensive ever.
The measure hasn't been written, but the
idea is to provide "new and substantial ben-
efits and protections" to drivers while giving
companies the legal certainty they're not
misclassifying drivers, Lyft head of commu-
nications Adrian Durbin says.
The company turned to a ballot initiative
after striking out at the legislature, West said
on the call with reporters.
"This is something that became an alter-
native only when it looked like we were un-
able to come to any kind of negotiated com-
promise with the parties ... and when it was
clear that the legislature was not going to
act," West said. "This is not our first choice. I
want to be really clear about that."
Outside California
Whether through the courts, a ballot mea-
sure, additional legislation or a negotiated
agreement with the governor, there should
be much more clarity in how the law will play
out in practice within the next two years,
Kasselman says.
In the meantime, states may follow Cali-
fornia's lead.
The National Labor Relations Board has
ruled gig-economy workers are correctly
classified as independent contractors under
federal law. Sen. Bernie Sanders, an inde-
pendent from Vermont seeking the Demo-
cratic Party's presidential nomination, in-
troduced a bill last year to establish the ABC
test at the federal level, though it's unlikely
to become law.
That's left states like California, often a
bulwark against Trump administration poli-
cy, to set the tone. There are indications oth-
ers are following.
New York Gov. Andrew Cuomo, also a
Democrat, told reporters last month he
was interested in an effort to classify more
workers as employees instead of indepen-
dent contractors. Asked if New York was
lagging California on the issue, Cuomo
said he'd proposed and would again pro-
pose measures to boost worker protections,
including classifying them as employees,
according to a news conference transcript
provided by his office.
The California law isn't the first in the na-
tion, but the state's size and influence set it
up as a model for other states.
"Many states look to California as ... the
testing ground for progressive employment
laws," says Richard Meneghello, co-chair
of the gig economy practice area at employ-
ment law firm Fisher Phillips.
"So it would not surprise me if an impact
of the passage of this law is that later this year
and in 2020 and beyond you see other states
follow California's lead," Meneghello says.
CQ I OCTOBER 7, 2019 29