What’s the news? California’s Senate passed a bill – AB 5 – which would require businesses to hire workers as employees and not independent contractors, barring a few exceptions.

Why this matters: According to multiple reports, this bill will essentially disrupt the gig economy. Contractors, or gig workers, do not generally get the same benefits – minimum wage, overtime pay, paid leaves, insurance – as permanent employees. Once this bill is passed by California’s governor Gavin Newsom, it is tipped to force businesses into restructuring how they hire people.

Details on the bill: The California bill, known as AB 5, expands a California Supreme Court decision last year known as Dynamex.  Under AB5, to hire an independent contractor, businesses must prove that the worker:

  • Is free from the company’s control
  • Is doing work that isn’t central to the company’s business
  • Has an independent business in that industry.

This is also popularly called the ABC test.

Who’s worried by this bill? According to multiple reports, almost all businesses that thrived on having independent contractors are worried. However, ride-hailing companies like Uber and Lyft have been among those who’ve been lobbying against the bill.

Context: In May this year, drivers of Uber and Lyft protested against the companies’ problematic paying model. Protestors alleged that they didn’t make enough money even if they did overtime.

Here’s what Uber said: Following the passage of AB5 in the Senate, Tony West, Uber’s Chief Legal Officer said:

Contrary to some of the rhetoric we’ve heard, AB5 does not automatically reclassify any rideshare drivers from independent contractors to employees. AB5 does not provide drivers with benefits, nor does it give drivers the right to organize. In fact, the bill currently says nothing about rideshare drivers. – West

He also said that drivers weren’t core to Uber’s business:

In fact, several previous rulings have found that drivers’ work is outside the usual course of Uber’s business, which is serving as a technology platform for several different types of digital marketplaces. – West

Uber, Lyft and Doordash united against the bill: The AB5 bill has brought rivals Uber, Lyft and Doordash together. Uber, Lyft, and DoorDash are planning to  contributed $30 million each into a fund for a new California ballot proposal that would counteract AB 5.

Our take: Passage of AB5 will set a benchmark for regulating how businesses and ride aggreagtors in particular treat their employees. Here in India, several cab drivers who drive for Uber and Ola have time and again complained about low income and high commission charged by these companies.