This article is a follow-up to an article posted on September 12, 2019 – “California’s New Labor Law Takes Aim at the Gig Economy”.
Earlier this year, California passed a new law, Assembly Bill 5 (“AB-5”), effective January 1, 2020, that reclassifies most independent contractors as employees and will impact employers and industries such as ride-sharing, journalism, and food delivery.
The new law is meant to protect gig economy workers who are misclassified as independent contractors and denied benefits like minimum wage protections, sick leave, and unemployment insurance.
AB-5 could change the employment status of more than a million workers in California and, ironically, could lead to layoffs as companies hire layoff contractors and hire fewer full-time employees or move the positions out of state.
Carve Outs
There were many companies vying for a carve out that included contract lawyers, doctors, and engineers but did not include freelance journalists, ride-share drivers or truck drivers.
Food delivery service company DoorDash, and ride-share companies Lyft and Uber failed to secure carve outs and plan to spend a million dollars on a ballot initiative in 2020 to include their contractors.
In the meantime, Uber and Lift have commented that their drivers will remain contractors when the new law takes effect on January 1 and this is likely lead to lawsuits.
Uber has added AB-5 as a risk factor in its Form 10-Q quarterly fillings and stated:
“In connection with the enactment of California State Assembly Bill 5 (“AB-5”), the Company has received and expects to continue to receive an increased number of claims by or on behalf of Drivers that Drivers have been misclassified as independent contractors rather than employees. With respect to the Company’s outstanding legal and regulatory matters, based on its current knowledge, the Company believes that the amount or range of reasonably possible loss will not, either individually or in the aggregate, have a material adverse effect on the Company’s business, financial position, results of operations, or cash flows. However, the outcome of such legal matters is inherently unpredictable and subject to significant uncertainties.”
The aftermath of AB-5 will have important implications for the gig economy as other states consider similar legislation.
The New Jersey Senate and Assembly passed bills to follow California’s lead and to codifying into law existing Supreme Court of New Jersey’s rulings on the definition of independent contractors. However, with blow-back from the business community and lobbyists asking for exemptions, the final text of the bills might need some revisions.
Massachusetts has a 1990 statute that the California law was based on and other states, including Colorado, New York, Oregon, and Washington are considering similar regulations.
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Uber Technologies Inc. (NYSE: UBER; LSE: 0A1U; DB: UT8)
- www.uber.com
- Headquartered in California, United States, Uber is a multinational peer-to-peer transportation platform and network, which includes ride sharing, ride service hailing, food delivery, and bicycle sharing.
- Uber listed as a public company and started trading on the New York Stock Exchange in May 2019.
- Uber is currently trading at US$30.17 per share with a market capitalization of US$51.5 billion.
Lyft Inc. (NASDAQ: LYFT; DB: LY0)
- www.lyft.com
- Headquartered in California, United States, Lyft is a peer-to-peer ridesharing company that operates in the United States and Canada.
- Lyft listed as a public company and started trading on the NASDAQ in March 2019.
- Lyft is currently trading at US$45.84 with a market capitalization of US$13.6 billion.
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