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AB5, California’s landmark gig-work law, takes effect Jan. 1 amid controversy

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California’s landmark gig-work law, AB5, takes effect Wednesday amid a swirl of controversy, confusion and escalating challenges.

Gig companies, truck drivers and freelance journalists are suing over it. Hours before its implementation, truck drivers won a temporary restraining order blocking California from enforcing AB5 against them. Uber, Lyft, DoorDash, Postmates and Instacart are mounting a $110 million ballot campaign seeking to exempt their workers. Some out-of-state companies are dropping California freelancers while others are requiring them to incorporate. Some companies are reclassifying workers as employees; others are not. The law’s author plans to introduce additional legislation soon to clarify more aspects.

Despite the hoopla, AB5 will not cause legions of independent contractors to magically be transformed into employees. That requires companies to take proactive steps — or be forced to act by government agencies or courts.

The law’s intent is simple. It codifies, clarifies and extends a 2018 California Supreme Court decision called Dynamex that makes it harder for companies to claim workers are independent contractors. It says workers should be employees unless a) they are free from a company’s control, b) do work outside the company’s core business, and c) have independent enterprises performing the same type of work.

A range of professions, including doctors, lawyers, architects, engineers, accountants and more, are exempt from the new law’s strict test and instead covered by a previous test known as Borello.

AB5’s author, Assemblywoman Lorena Gonzalez, D-San Diego, and other vocal supporters, such as organized labor, say workers need the protections and benefits of being employees to prevent them from being exploited.

Its equally vocal foes say it’s an end run that jeopardizes the flexibility that companies and workers rely on. It’s “irrational and unconstitutional,” Uber and Postmates wrote in a federal lawsuit filed Monday that seeks to block AB5 from applying to them. Not coincidentally, turning contractors into employees can add about 30% to companies’ labor costs.

A look at some of the issues:

What are companies doing? Uncertain about the bill’s implications, organizations are taking a variety of approaches, said Mike Boro, partner for workforce of the future at giant consulting firm PwC.

“I have a couple of clients who are actually affirmatively not complying with the law,” he said. “Part of what they’re counting on is that the individuals (currently working as contractors) prefer not to become employees so won’t raise the issue and the state will have too much to do to look at them.” A PR representative later emailed to clarify that Boro did not mean companies plan to defy the law.

Other strategies his corporate clients are using include contracting with third-party agencies that hire gig workers, turning their gig workers into employees, or not hiring freelancers from California, he said.

“I can’t think of a single industry that doesn’t have parts of it impacted,” he said. “Lots of traditional employers have decided that a particular part of what they do is better served by nonemployees. It allows them to flex the size of the workforce on an as-needed basis.”

Emily Baker, a Los Angeles lawyer who advises small online businesses, said the law means her clients face either closing shop, running their entire business by themselves or moving out of state. Many are pausing operations while figuring out what to do.

“I’ve had more crying on the phone about AB5 — the confusion, frustration and increase in overhead,” she said. AB5’s numerous exceptions and some inconsistencies in the language increase uncertainty, “making it hard for businesses to figure out what to do,” she said.

What are workers doing? Since AB5 does not automatically reclassify contractors, those who meet its criteria would have to act to seek a change in their status, by filing lawsuits or complaints with government agencies.

Some Uber drivers have already sued to be reclassified as employees under AB5 and Dynamex. Similar lawsuits by workers at Uber, Lyft, DoorDash and other gig companies are already in courts under the previous Borello criteria.

Conversely, contractors who wish to remain independent may not have much say in the matter — that’s what prompted the lawsuits by truck drivers, freelance writers and photographers. A driver for Uber and one for Postmates each joined in those companies’ lawsuit, seeking to remain contractors.

The new law exempts businesses providing services to other businesses under certain conditions. Some contractors have decided to incorporate or register as limited liability companies in a bid to stay independent.

That’s what Alessandra Bonatti did. A conference interpreter who speaks four languages, she set up a corporation “because I understand that companies that hire me here in California would require me to be incorporated or run the risk of finding themselves in trouble,” she said.

Incorporating was complicated and expensive, requiring the services of a lawyer and accountant, and will continue to cost more in the future, she said. “But it gives me ease of mind for sure,” she said. “Indeed, there have been agencies (organizing events and conferences) that have asked.”

While it’s still early to draw firm conclusions, data from the California secretary of state show an increase in new registrations for corporations and limited liability companies since September, when AB5 was passed, compared with the same time frame in 2017 and 2018.

How will AB5 be enforced? The law empowers city attorneys to go after companies for noncompliance, something that Gonzalez tweeted she hopes will happen as soon as possible. The Uber-Postmates lawsuit specifically raises this possibility and seeks a preliminary injunction to forestall it.

“It was important to provide city attorneys with the ability to sue because that might be the only way to get group relief without being blocked by the federal arbitration act,” said William Gould, an emeritus law professor at Stanford, referring to the fact that gig companies require workers to agree to mandatory arbitration, blocking their ability to file class-action lawsuits.

The city attorneys of San Francisco and Los Angeles in September both expressed willingness to take action to enforce AB5.

Other government entities can act as well. The Employment Development Department and the Department of Industrial Relations have already mailed a letter to more than 1 million California employers and set up a website explaining the law, said EDD spokesman Aubrey Henry in an email.

Its goal “is to ensure both workers and employers have the information and resources they need to ensure compliance,” Henry wrote. “Businesses suspected of non-compliance may be selected for payroll tax audits or inspections.” Companies could cross its radar for independent contractor tax forms, worker claims for unemployment or disability benefits, on-site inspections and referrals from other government agencies.

What about the ballot initiative? Signature gathering should start this month for a proposed measure that would leave app-based drivers and couriers as independent contractors while guaranteeing them a wage floor and some benefits. It needs about 630,000 signatures to qualify for the November ballot.

Uber, Lyft and DoorDash have each pledged $30 million for the initiative; Instacart and Postmates are each putting in $10 million. That $110 million war chest plus opposition spending could make it among California’s costliest ballot fights.

“We’re gearing up for a major campaign” against the measure, said Steve Smith, a spokesman for the California Labor Federation, which views AB5 as a significant worker victory — and hopes to organize Uber and Lyft drivers and other gig workers once they are employees. “Given the heavy spending on the other side, we’re going to be prepared to move forward on educating voters earlier in the cycle than normal.”

With a presidential election, November turnout is likely to be heavy in the Democratic bastion of California. Virtually every leading Democratic presidential candidate has endorsed AB5 and backed similar legislation at the federal level.

“All the people who come out to vote against Trump — that doesn’t bode very well for the ballot initiative,” said Beth Ross, a San Francisco labor lawyer.

Carolyn Said is a San Francisco Chronicle staff writer. Email: csaid@sfchronicle.com Twitter: @csaid



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GiG to provide compliance tool to Nano Casino

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Gaming Innovation Group (GiG) has signed an agreement with Finnplay Group-owned Nano Casino, for the provision of its affiliate marketing compliance tool, GiG Comply.

The supplier said the automated marketing compliance solution enables operators to scan web pages for content including links and igaming ‘code red’ words.

It works by using its rules engine to analyse snapshots from affiliate marketing campaigns, and provides operators with the promotional content that is being used to promote its brand.

GiG says the tool is flexible and allows operators to set up their own criteria and checklist parameters that can be tailored to their own market-specific requirements.

“At Nano Casino we strive to ensure not only player satisfaction but also compliance with the different legislation applicable in each jurisdiction we operate in and we believe that our partnership with GiG will make us reach this goal much more efficiently and holistically,” said Daniel Lilja, Nano Casino’s head of marketing.

Jonas Warrer, managing director at GiG Media, added: ‘’It’s now more important than ever for operators to ensure that their marketing efforts meet market-specific legislation and advertising standards globally.”

“We are proud to add Nano Casino to our partners’ list and are happy that they have chosen GiG Comply as their partner of choice to help support them with their marketing compliance strategy for 2021”

The intellectual rights to Nano Casino were transferred to Finnplay Group’s Viral Interactive B2B subsidiary from Global Gaming in July 2020.

Nano is the latest brand to incorporate GiG Comply into its offering. LeoVegas struck a deal with the supplier in December to include the tool into its platform, and it has been used by Betfred since September 2019.

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automation: From automation to gig economy, India needs to work on its skilling program

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For a labour surplus economy, India faces acute shortage of skilled workers. The recent Human Development Report 2020 highlighted that one out of five workers in India is skilled. According to the report, skilled labour as a percentage of the labour force in India stands at 21.2%, and other countries which share a similar position include the likes of Sudan, Cameroon, Ivory Coast and Liberia. Amidst the pandemic’s adverse blow to the country’s



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The Europeans rethinking the gig economy model

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A few weeks ago delivery company Just Eat announced plans to move away from using ‘gig economy’ workers, instead offering driver benefits including hourly wages, sick pay and pension contributions.

The company, which merged this year with Netherlands-based rival Takeaway.com, in effect threw down the gauntlet to rivals such as Uber, Deliveroo and Glovo who are still using workers with no employment rights and benefits. 

But Just Eat’s announcement is merely the latest development in a shift across Europe — encouraged by growing regulation and also a growing discourse against gig workers — that has seen others like courier federation CoopCycle look for a new employment model.

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Meanwhile, Uber is awaiting a verdict from the UK Supreme Court, which could force it to pay drivers an hourly minimum wage and holiday pay.

These shifts could see Europe at the vanguard of a global movement away from using gig working — that is, if other European tech companies follow their lead.

“The right thing to do”

Just Eat’s UK managing director Andrew Kenny tells Sifted that the decision on a new employment contract comes from a place of moral responsibility.

“We feel very strongly as a business that affording couriers the protections that come with this model is the right thing to do. We’re fortunate that as a successful and profitable and market leading business that we’re in a position to do so,” he says.

While declining to put a figure on it, Just Eat told Sifted that the costs of this new model are “significant”, as the company will be supplying riders with e-scooters and bikes, which will be collected from a central hub.

“It’s a very different model, we have a hub in central London where the electric bikes and electric scooters are stored, where couriers can come in and take a break, use the facilities and have a hot drink, so you’re dealing with real estate in London and as we expand, elsewhere,” explains Kenny.

While this might present a significant cost for Just Eat, Kenny believes it also goes some way to reducing the stress of vehicle maintenance costs that gig economy workers face.

“We’re providing them with the electric bike or electric scooter, so the maintenance is all taken care of for them. If they have an issue they jump on another bike so they don’t have the same stresses that go with alternative models where you would be responsible naturally for that kind of thing yourself,” he says.

It is worth noting that Just Eat has long differed from competitors like Deliveroo and Uber Eats, in that it also relies on delivery drivers employed by the restaurants themselves. This means that the cost of giving its own couriers employment contracts is relatively cheaper than it would be for rivals, as they represent a smaller portion of the delivery fleet.

Ownership

Another example of a growing response to delivery apps is the rise in rider-owned cooperatives.

Based in Paris, CoopCycle is a federation of courier platform cooperatives that are active in more than 50 cities in eight countries.

CoopCycle helps couriers launch their own cooperative delivery businesses, sharing the tech for the platform software, the customer facing smartphone app, and knowledge around business strategy and pricing.

CoopCycle
The CoopCycle app and web platform

All riders working with the CoopCycle model are employees and, beyond giving couriers stable income, organisers say this also makes the work safer than a pay-per-job model.

“Being a courier is a dangerous job, you have to cycle as fast as you can to complete as many jobs as possible,” says Adrien Claude, European coordinator for CoopCycle. “We are not in a model in which the faster you ride and the more lights you jump, the more money you get.”

“Restaurants are sick of the service because, as couriers aren’t treated well, the consequence is that the service is shit.””

Claude adds that the employee model leads to a better relationship with restaurants: “Restaurants are sick of the (gig economy) platforms. They’re sick of the service because, as couriers aren’t treated well, the consequence is that the service is shit.”

CoopCycle relies on exclusive deals with restaurants to make the service viable in the face of the big, heavily-backed alternatives with big marketing budgets.

“We can’t afford sponsorship with a football club, we can’t afford advertising on TV,” Claude explains. “What we have to sell is something different. We want a virtuous circle between customer, city, restaurant and couriers, with couriers protected.”

The scale of CoopCycle’s operations is understandably much smaller than gig economy models. Claude says that in the federation’s most active cities (Nantes, Berlin, and Grenobles), cooperatives employ between 10-20 couriers.

And while growth-minded observers might sniff at such numbers, the cooperative movement is gaining momentum, with accelerators and incubators popping up on both sides of the Atlantic. 

A third way?

Those who stand accused of exploiting drivers and riders see it differently. 

Uber chief executive Dara Khosrowshahi has previously argued for what he calls a “third way”, where drivers keep the flexibility of the self employed model, while still receiving some benefits like holiday pay or sick leave.

This, according to some campaigners, is disingenuous.

James Farrar is a former Uber driver and general secretary of the UK-based App Drivers and Couriers Union. He says that this “third way” already exists in the UK, but is exactly what Uber are arguing against in the courts.

“If you look at what he’s arguing in the US, he’s arguing for something between self employed and employed. We have that here in the UK and they’ve spent the last five years fighting against it, telling everybody the law was obsolete and needed to be updated and of course this couldn’t work,” he says.

James Farrar, general secretary of the UK-based App Drivers and Couriers Union

The tech platform is currently fighting a decision made by a UK employment tribunal that classed Uber drivers as “limb (b)” workers. 

Limb (b) is a legal worker classification in the UK for so-called “dependant contractors”, who are self employed but “provide a service as part of someone else’s business.” 

This, says Farrar, fits the Uber model perfectly, and would entitle drivers to just the kind of benefits that Khosrowshahi claims to support. Uber is currently contesting the classification in the UK Supreme Court.

“It’s a prime example of Uber saying one thing in California and then spending millions on lawyers on this side of the Atlantic to defeat the same argument,” Farrar adds.

Uber’s reluctance to recognise its drivers’ status as limb (b) workers in the UK exposes the hypocrisy of the well-worn argument that “regulations are too out of date” for tech platforms. 

And as pressure mounts on gig economy platforms from courts, competitors and customers alike, big question marks still hang around whether their “growth at all costs” model can be sustainable, and if Europe can come up with a different model.

Tim Smith is Sifted’s Iberia correspondent. He tweets from @timmpsmith



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