In September 2019, Governor Gavin Newsom (D) signed Assembly Bill 5 (AB 5), which extends the classification of employees to workers across many professions that previously had been considered as independent contractors.  Many of these individuals work for app-based delivery and transportation companies like DoorDash, Instacart, Lyft, and Uber.  There are more than 325,000 Lyft drivers and more than 200,000 Uber drivers in California who have been impacted by AB 5. 

Fortunately on November 3, Californians will have a chance to help these drivers regain their independence by approving Proposition 22, which states: “Exempts App-Based Transportation and Delivery Companies from Providing Employee Benefits to Certain Drivers.”  A “yes” vote would allow app-based services to again contract with drivers as independent contractors.  It would offer independent contracting app drivers to “decide when, where, and how much to work,” but would not require the app platform company they use to provide them with benefits that employees receive. A “no” vote would require the app-based services to hire drivers as employers with full benefits that businesses must provide employees and eliminate the flexibility that drivers have to work on their own schedule.

In August 2020, as a result of AB 5, Uber and Lyft threatened to shut down their services in California after a judge rejected the companies’ challenge to how AB 5 reclassified their independent contractors as employees with benefits.  Eventually, the companies decided not to pull out after the judge stayed his decision until after the vote on the referendum.

According to the California Labor & Workforce Development Agency, anyone found to be in violation of AB 5 is subject to between $5,000 and $25,000 per violation. Gov. Newsom has also threatened to penalize any business that misclassifies an employee as an independent contractor based on the law’s current definitions.  

In order to determine if a worker is an employer or independent contractor, all workers would be considered employees unless the business can pass an ABC test.  Businesses would have to demonstrate the following three factors:

“A. That the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact. 

B. That the worker performs work that is outside the usual course of the hiring entity’s business. 

C. That the worker is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.”

App-based drivers are not the only independent contractors who have been harmed by enactment of AB 5.  Freelance writers, tutors, and hairdressers have also been adversely affected by this law.  In addition to the nearly 50 exceptions to AB 5 that were included in the legislation, like accountants, architects, attorneys, physicians, business-to-business contractors, construction subcontractors, and real estate licensees.  The state recently added exemptions for musicians and newspaper carriers. 

In February 2020, Assemblyman Kevin Kiley (R-Rocklin) and Assemblywoman Melissa Melendez (R-Lake Elsinore) introduced legislation that would repeal AB 5, but it failed to pass the Assembly Labor and Employment Committee.  Prior to the end of the California Legislative Session in August, Assemblyman Kiley tried to amend the economic stimulus package with a measure to repeal AB 5 for all independent contractors except app-based drivers, since they were already on the ballot.  The Assembly voted 53-17 to lay the amendment on the table. 

Despite the significant loss of jobs and other adverse repercussions in California stemming from the enactment of AB 5, there are efforts to nationalize the law in Congress through the Protecting the Right to Organize (PRO) Act, which passed the House in February by a vote of 224-194.  Democratic presidential nominee and former Vice President Joe Biden has endorsed AB 5 and the PRO Act and has stated he wants to “aggressively pursue employers” who violate labor laws including misclassifying employers as independent contractors. 

Voters in California should approve Proposition 22 and allow app-based drivers to once again be independent contractors.  It will provide drivers with the flexibility to work whenever and wherever they want. 

While the ballot initiative to exempt app-based drivers from the anti-free market bill is good step in the right direction, Californians and state lawmakers should continue to support efforts to fully repeal AB 5 to protect other workers not covered by the November ballot referendum.  Approving Proposition 22 will send a message across the country that laws like AB 5 are unacceptable to taxpayers both in other states and as a federal law.