California Assembly passes bill to classify GIG workers as employees; Uber and Lyft drivers, Doordash and Grubhub workers and others affected.

Under a bill that passed the California State Assembly on Wednesday, AB5, GIG workers such as Uber and Lyft drivers, Grubhub and Doordash food delivery workers, Amazon document delivery  workers and others, will be considered employees rather than independent contractors. Currently, GIG workers, who rely heavily on tips to make ends meet, are considered independent contractors. As such, GIG workers are responsible for all the costs associated with the upkeep of their vehicles and other equipment necessary for performing their duties.

Benefits for workers

As independent contractors, GIG workers are not entitled to benefits exclusive to employees, such as unemployment benefits, Workman's Compensation, overtime pay, and medical benefits. Additionally, GIG workers do not have payroll deduction charges for Social Security, which means that they do not accrue Social Security benefits from the money that they earn. 

Parent companies escape all commensurate charges

As things stand currently, the parent companies for which the GIG workers are providing services as independent contractors, do not have to pay the fees that normally are paid by employers, such as Workman's Compensation, Unemployment insurance, health insurance, Social Security deductions, and federal and state tax deductions. If AB5 passes the State Senate and is signed into law by Governor Newsom, the free ride for parent companies, including Uber, Lyft, Doordash and others, will be over.

A spokesperson for Uber stated that AB5 potentially would seriously affect its business model and ultimately change the services that it offers to the public. The company suddenly would be responsible not only for paying all of the aforementioned benefits and deductions, but would be forced to pay a $12.00 per hour minimum wage and to provide break times and meal times.

It is unclear whether or not the parent companies would have to pay for the maintenance of the driver owned vehicles that their service drivers currently operate. As it stands now, the drivers are totally responsible for such costs.

The ABC test

AB5 extends the 2018 Supreme Court ruling known as Dynamex. Under that ruling, the ABC test is applied to determine if a worker is an employee rather than an independent contractor. According to the ABC test, the following three parameters are required for a worker to be considered an independent contractor: 1) The worker must be free from the control of the companies for which they work, 2) The work conducted by the independent contractors must not be central to the company's business, and 3) The workers must have their own independent businesses in the industries of the companies for which they are providing services.

It goes without saying that companies such as Uber, Lyft, Grubhub, Doordash and others would not pass the ABC test for hiring independent contractors. The services provided by such workers are central to the companies for which they work and most if not all of their workers do not have their own independent businesses in their industries.

Increased costs to consumers

The ultimate outcome of AB5 is unknown at this time. Most likely it will pass the Democratic controlled State Senate without difficulty. However, the bill's fate once it lands on the Governor's desk remains a mystery for two reasons: 1) The Governor could veto the bill outright and 2) The Governor could use his "Line item veto" power and change the bill before signing it.

The one thing that is certain is that if AB5 passes and is signed into law as it is currently written, the increased costs of doing business to the parent companies will be passed onto the consumers. Prices will go up which will reduce the competitiveness of the parent companies and the services that they provide. As with all industries, the increased costs of doing business are always passed onto consumers. Buyer beware.

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