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California Could Soon Reclassify Ride-Share Drivers as Employees, Not Contractors

California Could Soon Reclassify Ride-Share Drivers as Employees, Not Contractors
california could soon reclassify ride-share drivers as employees, not contractors
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  • california's uber drivers, doordash deliverers, and other members of the "gig economy" could soon become employees instead of independent contractors.
  • assembly bill 5, passed by the california senate on tuesday, and expected to be signed into law, would require such app-based services to treat (and pay) these workers as full-time employees. it would go into effect on january 1, 2020.
  • california estimates it loses $7 billion per year in tax revenue from companies misclassifying employees as contractors.

    within months, some of the hundreds of thousands of californians who drive for ride-sharing and delivery services might see their phone alerts go silent. on the other hand, they stand to gain a lot in benefits and protection.

    that's because california assembly bill 5, which on tuesday passed the california senate 29–11, would reclassify potentially a million or more contractors as full-time employees. the bill, backed by labor unions, is headed back to the assembly and then expected to pass by friday to gov. gavin newsom, a democrat who intends to sign the bill despite strict opposition from companies like uber, lyft, seamless, doordash, and other silicon valley tech companies. the law would take effect on january 1, 2020.

    drivers have been split between remaining as independent contractors or lobbying to become full-time, unionized employees. many of these companies, particularly uber, have come under fire for compensating drivers unfairly for their time, classifying these drivers as "customers" in financial reports, and setting too many rules and restrictions on contractors—some of whom work full-time hours without benefits or state-mandated protections of full-time positions like unemployment insurance and sick leave.

    democrats in the california legislature want action—not to mention more tax revenue. in 2018, five years after a california class-action lawsuit demanded uber pay damages to 385,000 contractors who allegedly should have been classified as employees, an appeals court reduced damages to fewer than 14,000 uber drivers. california estimates it loses $7 billion per year in tax revenue from companies misclassifying employees as contractors. indeed, despite the fact that tax laws require contractors to pay income tax and a federal self-employment (the employer's contribution to social security), one of the first several lines justifying assembly bill 5 is to reduce the "loss to the state of needed revenue from companies that use misclassification to avoid obligations."

    the bill carves out dozens of exemptions for specific industries, which lyft has said it would use to overturn the law next year.

    "the fact that there were more than 50 industries carved out of ab5 is very telling," the company said to vox. "we are fully prepared to take this issue to the voters of california to preserve the freedom and access drivers and riders want and need."

    at issue for california democrats is the standard "abc" test that federal labor laws require employers to review before they can classify a hire as a contractor or an employee. generally as it stands nationwide, a job where someone can choose to set their own hours, negotiate their own rates, and otherwise produce work for multiple clients without control over their everyday schedules is potentially a contract position. the lines can blur—as they have now in california—as companies from all industries try balancing their payroll costs (full-time employees) with tax-deductible expenses (contractors). for tech companies like uber which rely heavily on contractors, have never budgeted en masse for employee benefits, and are usually unprofitable, the new bill could send their businesses spiraling.

    the bill is unlike any other labor regulation currently in force. gov. newsom said he is open to negotiations with the tech companies that have made california rich—for better or worse, depending on your opinion—before signing it into law.