California has kicked off a national debate on the right way to pay and protect gig-economy workers. It’s an issue that has ramifications for hundreds of thousands of people who work for
DoorDash, Postmates, and other companies that hire workers to drive people around, deliver meals, and perform other tasks. The debate is going to rage on in the months ahead—and the stakes are huge.
Let’s take a look at what might unfold from here.
As we laid out yesterday, the spotlight on this issue was kicked off by AB5, a California measure that codifies and clarifies a legal standard created in an April 2018 California Supreme Court decision known as the Dynamex case. In order to classify a worker as a contractor, according to the standard set in that case, the work they do must be outside the usual course of the hiring entity’s business. That bill is likely to be signed into law this week by Gov. Gavin Newsom, with an effective date of Jan. 1.
To be clear, the new law does not simply by fiat declare gig workers to be employees rather than contractors. Instead, it subjects all companies in the state to the standard in the Dynamex case—and in fact carves out exemptions for certain other kinds of contract workers, like brokers, insurance salespeople, and barbers.
The debate is unfolding at a tricky moment for investors in the gig economy—both Uber (ticker: UBER) and Lyft (LYFT) had disappointing public market debuts earlier this year, and now trade well below their IPO prices. (Uber is down about 25% since its initial offering; Lyft is off 36%.) And now, both DoorDash and Postmates are nearing IPOs of their own—and having a major business-model issue hanging over them isn’t going to help.
In what some observers found to be remarkably aggressive legal positioning, Uber on Wednesday asserted that driving people around isn’t actually the company’s primary mission. The company’s stance is that it operates marketplaces, not a transportation service—and so should not be subject to AB5 or the Dynamex standard. The company isn’t saying it will defy the law—just that the test laid out in the law does not require them to treat drivers as employees.
Uber has a big incentive to take that approach: Employees cost more than contractors. When you classify gig workers as employees, they become eligible for standard legal protections covering minimum wages, workers’ compensation, and working conditions, and employers are subjected to various employment-related taxes.
Gig workers generally frame the issues around giving them fair benefits, compensation. and protections. The companies have generally granted that those things are important, while focusing on the need to find compromises to allow continued worker flexibility without wrecking their business models.
Newsom has declared himself a supporter of AB5, while trying to negotiate compromises with both the gig-economy companies and organized labor. Vikrum Aiyer, vice president of public policy and strategic communications at San Francisco-based Postmates, said in an interview with Barron’s Wednesday that he has been in direct conversation with the governor’s office, while also working with “numerous labor leaders” over the past six or seven months to find “a collective vision” for how to reach consensus on key issues like defining adequate compensation, creating a shared fund for gig-worker health-care coverage, and giving employees a voice in the rules that govern their work.
Aiyer has little doubt that AB5 will go into effect in Jan. 1 and says that it doesn’t technically change that much. He notes that in May, California Secretary of Labor Julie Su provided guidance to businesses based in the state that the Dyanmex standard was now the law of the land. He notes that as a result, Postmates and other gig companies have been subject to multiple civil lawsuits asserting violation of the standards laid out the Dynamex decision.
When the law goes into effect next year, workers will gain the ability to file formal complaints with the state—although Aiyer notes that enforcement could be a challenge, given there are 500,000 or more gig workers in California alone.
Aiyer says Postmates hasn’t made changes in how it compensates employees so far, given ongoing discussions with the governor’s office and labor groups as they search for compromises that would make everyone happy. “As of right now, the state government is committed to a separate process to balance worker protection and flexibility, and we’re committed to seeing that process through,” he says. “We can convene folks even after the legislative session ends this week.”
While he doesn’t expect the industry to dodge AB5, he does think there’s a chance for a parallel policy and lawmaking effort that could adjust labor regulations for gig workers in the state with additional provisions. Postmates so far has taken a wait-and-see approach to a joint plan by Uber, Lyft, and DoorDash for a $90 million statewide ballot proposition campaign that could address some of the issues created by AB5.
Uber Chief Legal Officer Tony West said on a conference call with media Wednesday that Uber and Lyft could boost their investment in a ballot proposition “to put us in the strongest position possible to run a winning campaign.” Adds West: “We are hiring the best campaign team available, and we are working to expand the coalition to include other businesses who face uncertainty in the wake of AB5. We are confident that California voters and the millions of riders and drivers who use Uber will step up to protect these important work opportunities.”
West said that the plan is to “ask voters to support the pro-driver policies we have advocated for: giving drivers access to benefits and an earnings floor and retaining the flexible access to on-demand work they enjoy today.”
Meanwhile, Aiyer notes that other states have taken up the issue—including Washington and New York, both of which have substantial technology sectors. And he notes that there are efforts in Washington, D.C., to address some related issues on federal level, including the portability of employee health-care and retirement benefits.
Write to Eric J. Savitz at email@example.com