A new California law that will require many companies to reclassify independent contractors as employees when the measure goes into effect in January has raised broad criticism across multiple industries.
According to proponents of Assembly Bill 5, the intent of the legislation is to prevent wage theft and ensure that basic labor protections are provided for millions of workers. The measure was authored by Assemblywoman Lorena Gonzalez and signed into law by Gov. Gavin Newsom in September.
Anywhere from 1 million to 2 million California workers are being misclassified as independent contractors, even as they perform duties “traditionally associated with employees,” according to Steve Smith, the communications director for the California Labor Federation.
“As a result of that misclassification,” the workers are being denied a number of “basic protections … like worker’s comp if they’re injured and employment insurance, or even a minimum wage in many cases,” Smith told The Epoch Times.
He said that misclassification has been going on for decades.
In the past 10 years, this problem has allowed a number of app-based companies to foster “entire business models built around the idea of misclassification” in order to keep their costs down.
“It’s really putting a strain on our economy in California,” Smith said.
Others contend that the law will result in a slew of unforeseen ramifications—especially for industries that the legislation wasn’t necessarily designed to address.
“There’s so many unintended consequences,” Gene Wunderlich, the legislative liaison for the Southwest California Legislative Council, told The Epoch Times. “A lot of other businesses are starting to realize that they’re going to be affected by this as well, so that’s our concern.”
Wunderlich, whose coalition represents about 3,500 employers in southwest Riverside County, wryly referred to AB-5 as “a favorite topic of ours.”
“We were not happy with that from a number of points of view,” he said.
The trucking industry, in particular, may suffer from particularly severe setbacks due to the legislation.
Earlier this month, the California Trucking Association filed a federal lawsuit to exempt the industry from the law, and truckers held protests in major cities such as San Francisco and Oakland.
“It would have been nice if someone had taken the time to understand how the trucking industry works,” Brian Fielkow, the CEO of Jetco Delivery, a multimillion-dollar trucking and logistics company, told The Epoch Times.
Truck drivers are classified into two categories: employees and independent contractors who are referred to as owner operators. While owner operators have to pay for their own operating costs, at the end of the day, this classification generates “a substantially higher pay than employees,” he said.
“On a net basis (after expenses), the owner operator can bring home more than the employee driver,” Fielkow added. “But they have more risk—they are running their own business in every sense of the word.”
An additional benefit of being an owner operator includes more lifestyle flexibility: the driver can choose when to work and select which work to accept.
Fielkow said the new law will essentially put California truck drivers in a position where they have to choose from three problematic options: move to a different state, find a new line of work, or obtain their own insurance and Department of Transportation authority—“a huge burden for a small fleet. Insurance is expensive; compliance is complex.”
He said that his company has used its buying power to help drivers finance their trucks in order to realize their aspirations of being an owner operator.
“I’ve seen too many success stories of people that have made the plans, taken the risk, and have done well to just kind of sit quietly by as the state destroys the model that’s working very well for everybody.”
Ryan Vet, an entrepreneur and founder of an app called Boon, a platform that connects licensed professionals to temporary work opportunities, compared the new law to “whack-a-mole: it’s trying to … hit one problem on the head, [but] two other things pop up that might not be as favorable.”
“It’s all under the guise of fair pay and benefits, which are very noble causes,” he said. “I do think those should be examined outside of this context, I think it is important.”
Vet was aware of the fact that the law upsets the trucking industry. “The people that weren’t using this [app-based] technology … are now having to re-classify how their entire job works. … You’re disrupting an industry that didn’t need disruption.”
For Uber and Lyft drivers, the new law will stifle the trademark flexibility of working in the gig economy, he said.
“The downside is now Uber and Lyft, if they do hire these people as employees, can control every action that individual takes: when they drive, where they drive, how they drive, what they drive.”
The Boon app, which Vet loosely described as “Uber for healthcare or skilled labor,” will not be affected because healthcare professions were excluded from the law.
“We’re technically still [able] to do contract work,” Vet said.
Domenique Camacho Moran, an attorney for the firm Farrell Fritz who specializes in employment and labor litigation, told The Epoch Times that this feature is an interesting facet of the law.
“There were a bunch of industries that were exempted, and that certainly is not being talked about,” she said. “A number recognized professions: lawyers, architects, engineers, private investigators, accountants … doctors, psychologists, dentists, veterinarians.”
“It sort of does make you step back and say, so, who is, in fact, going to be subject to the law?” she said.
“There were a few occupations who had good lobbyists,” Wunderlich said. “They managed to get carved out, but if you didn’t have a good lobbyist—or didn’t realize that this was going to impact you—you’re probably going to get stuck. And truckers were definitely one of those.”
The Verge reported that companies such as Uber, Lyft, and DoorDash have committed to spending $90 million to get a countermeasure against the bill passed.
“Uber is already defying the law, saying that their contractors are still contractors even under the new law, which arguably is still a possibility,” Vet said. “It’s really a gray area, and they are dancing right on the line.”
“The most unfortunate thing is California really led the way in developing this gig economy, which is really benefiting a lot of folks,” Wunderlich said. “This is a major step in really driving a stake through the heart of that gig economy that we gave birth to and nurtured.”
Moran suggested this is only one step in what could possibly become a nationwide trend.
“The more interesting component for those of us outside of California is, will this experiment lead to a change in the law in New York, Illinois, Pennsylvania, Michigan, [and] other big employment states, [like] Texas?” she said. “If this turns out to be something that is well-received, I think we can anticipate … this will happen elsewhere.”