How AB 5 Hurts Californians

How AB 5 Hurts Californians

We have a guest post from a Republican resident of the county on how harmful this recently passed law is to low and middle income workers.

 


 

On September 18, 2019, California Governor Gavin Newsom signed AB5[i] into law, after passage by a senate vote of 29 Democrats in favor and11 Republicans against.

 

It is expected that nearly 1 million workers[ii] in California will be adversely affected by AB5, primarily low-income Gig workers who will now be reclassified as employees by the state, enforcing a strict standard for previously employed independent contractors and freelance workers, 79% of whom do not want this law, according to the Bureau of Labor Statistics Economic Release [June 7, 2018].

 

AB5 was unnecessary and it is poised to severely reduce jobs throughout the state and hurt Californians already struggling to afford the skyrocketing cost of living. Many independently employed rideshare drivers choose this line of work because it affords them greater flexibility to enter the workforce and /or supplement their income.  AB5 will eliminate this option for them as increased cost of hiring these independent contractors as employees will deter employers from creating these jobs.

 

AB5 was the subject of major lobbying efforts on both sides of the issue.  The legislation primarily targets low income labor: Gig economy workers (rideshare and delivery services such as Uber, Lyft, Doordash, Amazon delivery, etc.), truck drivers, janitors and home health aides, among others. Software workers may also find it harder to find employment if they are legally defined as workers vs. independent contractors under the new law.

 

One example of AB5’s fallout is truckers, who are geared up to exit the California market. According to the California Trucking Association, there are approximately 70,000 independent contractors currently in the state. That number is likely to drop significantly as carriers (large and small) do not renew lease agreements with independent contractors residing in California.

 

While this legislation is intended to bring revenue to government coffers (in the form of previously avoided payment of payroll taxes and workers compensation premiums), the loss of jobs and thus income tax revenue could offset any gain. There is the very real question of how many workers companies can employ should sales decline as employee-related costs get added.  After Governor Newsom endorsed AB5, Uber’s and Lyft’s stock prices, already trading well below their IPO prices, sunk to fresh lows.

 

Surprisingly, this legislation does not help undocumented workers, a group supported by Democrats.  Employers must now verify that every employee is eligible to work in the United States at the time of hire. Some experts estimate that undocumented workers may make up as much as 25% of the total Uber/Lyft workforce in some areas.

 

While Governor Newsom’s endorsement of AB5 was a stunning loss for the tech industry, it was a remarkable victory for labor unions.

AB5 enables the California attorney general, city attorneys, and local prosecutors to sue companies over perceived violations.  So expect to see enforcement duked out in some lengthy legal battles

 

Finally, as AB5 is poised to dramatically reshape the future of independent workforces beginning January 2020, its scope goes far beyond. Because as California goes, so goes the nation.  The bill’s passage in California will likely open the door for other Democratic-controlled states to do the same.

 


 

[i]    The California law expands a groundbreaking California Supreme Court decision last year known as Dynamex. The ruling instructs businesses to use the so-called ABC test to figure out whether a worker is an employee. To hire an independent contractor, businesses must prove that the worker a) is free from the company’s control, b) is doing work that isn’t central to the company’s business, and c) has an independent business in that industry. If they don’t meet all three of those conditions, then they have to be classified as employees.

 

[ii] Interestingly, over 50 professions or other types of businesses are exempt from the new law. Doctors, accountants, architects, real estate agents, travel agents, graphic designers and investment advisors — along with many other professions — will not be subject to the strict employee rules contained in it.