App-based Companies Say The Fight Isn’t Over

California Governor Gavin Newsom signed Assembly Bill 5 on September 18, 2019. This law places new limits on the state’s businesses and their use of independent contractors. This largely affects employers in the gig economy space like Uber, Lyft, Doordash, and some independent truck drivers. The law is scheduled to go into effect in January 2020.


In a message released by Newsom’s office, AB5 “will help reduce worker misclassification — workers being wrongly classified as ‘independent contractors’ rather than employees, which erodes basic worker protections like the minimum wage, paid sick days and health insurance benefits.”


Uber, Lyft, Doordash, Postmates and other gig-based companies say that because they use internet platforms to secure and dispatch workers, they should not be classified as employees and remain classified as independent contractors.


However, the California Supreme Court, legislature and, now, Governor have come down firmly on the side of the workers. AB5 provides that the people delivering the app-based companies’ services and generating their profits receive the full rights and benefits employment status provides.


While the new law outlines detailed standards for who should be considered an independent contractor, several exemptions were carved out in the final language of the bill. Doctors, accountants, architects, real estate agents, travel agents, financial and investment advisors, graphic designers, etc. were deemed not to fall under the regulations of AB5. 


Employers in California will have to apply the “ABC test” for determining whether someone is a contractor or employee. Other states, like Massachusetts, Virginia and New Jersey have some form of similar tests. However, Uber and Lyft have been able to circumvent the private enforcement in these states through forced arbitration agreements. 


For their part, Uber and Lyft say they will fund a ballot initiative in 2020 asking voters to approve the creation of a new category for ride-hail drivers that allows them to maintain the classification of independent contractors while providing a base salary and some benefits.