California is attempting a massive labor experiment that could grow into a disaster for millions of workers
- California passed a new law that would try to stop companies from relying on full-time freelancers and instead make them full-time employees.
- While the law comes from a good place, it has issues.
- Arbitrary exceptions and complicated rules are making it hard to figure out how it will be applied.
- And large corporations like Uber and Lyft, whom the law was supposed to crack down on, are already trying to figure out a way around it.
- Some lawmakers want to take the idea nationwide. But given the current idea's problems, that would be a mistake.
- Larry Buhl is a multimedia journalist, author, and podcast host.
- Visit Business Insider's homepage for more stories.
Come January, I may have to leave California just to work in my field. I'm a self-employed multimedia journalist based in Los Angeles. I have an independent business, I don't get paid vacations, and I have to cover my own health insurance. I've made these trade-offs for career flexibility. But the state's new Independent Contractor Law, Assembly Bill 5 (AB5) assumes that I'm being exploited and should be an employee, whether I want to be or not.
AB5's intention - to protect and reclassify truly victimized and misclassified workers - is noble and worthy. But the bill was haphazardly written and rushed through the legislature, and it doesn't account for the way tens of thousands of freelance professionals in the state work. For us freelancers, the bill will only cause headaches and end up hurting more than it helps.
Good intention, bad fix
AB5 codifies a 2018 state Supreme Court ruling, Dynamex Operations West v. Superior Court. In that case, a trucking firm, Dynamex, had fired its employees and made them independent contractors, a business practice most reasonable people could see as problematic.
The ruling put forth a basic ABC test that says Californians getting paid for labor or services should be employees unless the companies paying them proves employees are:
- free from the company's control
- perform tasks outside the company's main business
- operate a truly independent business
Many will run afoul the second point. A radio station hiring a plumber to fix its toilet? No problem - different businesses. But that station hiring me to do a story, same business, and AB5 could be violated. Violations could lead to penalties including fines between $5,000 and $15,000 per violation.
AB5 should benefit workers who do on-site labor full-time for one employer. Janitorial and construction industries are notorious for this kind of misclassification. But for other independent contractors, it's hair-on-fire time.
There are some wrinkles and a load of arbitrary exceptions, which only adds to the confusion.
The law gives journalists like myself - as well as editorial cartoonists and photographers - a bit of wiggle room by allowing us 35 annual submissions to one publication before we have to receive full employee benefits. But that's cold comfort for those writing a weekly column or those likely to meet that 35-submission cap in a month rather than a year.
Other professions have a "get out of AB5 free card." Doctors, insurance agents, architects, stockbrokers, and engineers, to name a few, aren't encumbered by these rules. It helped that several of these industries had powerful lobbyists demanding carve-outs while the bill was being crafted.
The exceptions and exemptions lead to confusing distinctions. Fine artists got an exemption, but still photographers didn't. Real-estate agents got an exemption, but professionals in related services - home stagers, appraisers - did not. Truck drivers who own their own trucks and want to be independent must be made employees or find another line of work.
Drivers for Uber and Lyft and delivery workers for DoorDash and Instacart would be reclassified. These companies were top targets of AB5's supporters. But there's a catch: If a judge determines these companies are in the software business, as the companies are insisting, drivers would meet the second test of the law and therefore not be granted the benefits of full-time employees.
Confused yet? You're not alone. I've spoken with industry experts, employment lawyers, and labor leaders who say this law, even if the intentions were good, is a holy mess. AB5 is at once too broad and too restrictive, taking a legislative chainsaw to the real problem of worker misclassification when only a scalpel was needed.
Hurting more than it's helping
AB5 with its simple three-part test makes employee classification much less subjective, according to Shaun Spalding, an intellectual-property lawyer at New Media Rights.
"(AB5) makes it easier for a company to lose a classification lawsuit," Spaulding told me. He added that big companies with deeper pockets would be more likely to comply with the new law. "But for smaller companies, a one-person web shop who hires two people for two months, they can't afford to make them employees."
Though she didn't respond to requests for this article, the author of AB5, Assemblywoman Lorena Gonzalez (D-San Diego), has said that professionals with no AB5 exemption can work directly for an employment clearinghouse now. It means a new industry could be created - temp firms who will hire us and take 50% of what we had been earning.
Gonzalez also said that enforcement of the law will be done at the employee level, so unless we report a violation, companies we work for have nothing to worry about. But companies have plenty to worry about, and those who hire nationally are starting to wonder whether it's worth the risk to hire a Californian - the law applies to workers residing in California, not the company.
There are already examples of a California backlash. Patch Media has placed an ad looking for reporters to cover stories about California, so long as the reporters don't actually live in California. I wonder why. Some employment listings, like this one for transcribers, come right out and say it: "Due to legislative restrictions, residents of California and Massachusetts are not eligible for this opportunity." Massachusetts has a similar though less restrictive law.
The start of a worrying experiment
California freelancers who aren't feeling the pain yet may experience it next year. A brief from the Berkeley Labor Center says contractors in almost all occupations, except the highest-paying ones, coincidentally, will be reclassified under the law. AB5 is a grand experiment that tells employers and contractors, whose working relationships had been fine for years, change your business and figure out the details.
The fight to protect individual careers is not over. Professionals in a variety of occupations are lobbying state representatives who had voted for AB5 - thinking it was completely pro-labor - to get exemptions in the next legislative session. And last week independent truckers filed suit over the law. Uber and Lyft are trying to get a measure on November 2020 ballot to exempt their drivers, but nobody else, from AB5.
Here's a bigger problem: AB5 could become the new normal nationally. All major Democratic presidential candidates have expressed at least tepid support for AB5, and one, Elizabeth Warren, has said it would be a good model for the US. Nationwide, 57 million people freelance in some capacity, and not all are doing it because they can't find a "real job." A national 2016 survey showed that most independent workers freelance by choice.
New York state lawmakers are considering their own version of AB5, and one can hope their bill will avoid the overlooked and unintended consequences of California's. In September, as AB5 was being voted on, New York City passed a law mandating that freelancers be paid in full within 30 days of completing a project. Next time California lawmakers want to take on labor laws, they might want to look at that one. That's something every freelancer could support.
