Is California About to Kill the Gig Economy?

Oct 05, 2019

Will California’s new employment law, aimed at so-called “free-riding” businesses that are shirking tax obligations, upend the state’s gig economy? Furthermore, will we see similar statutes wriggling their way in other state law books?

California Passed a Bill that Could Destroy the Gig Economy

California lawmakers passed Assembly Bill 5, which changes employee classification standards in the state. Assemblywoman and author of the bill Lorena Gonzalez explained that the statute is designed to protect workers and hinder businesses’ ability to skirt employee tax, unemployment insurance, health care, and pension obligations.

The news is significant because the statute may force companies like Uber and Lyft to treat drivers as employees.

Contractor v. Employee: General Guidelines

Under the law, workers are not employees if the work they do falls outside of the company’s usual course of business. However, even in those cases, if the company controls the contractor’s environment and process, or their work is part of regular operations, then they’re supposed to be employees, with all entailed benefits.

Several different government agencies, including the IRS and Department of Labor, create employee-qualification tests that are applied when conflicts arise.

For its part, the IRS examines 20 factors when evaluating someone’s employment status, including (but not limited to):

  • Work-control dynamics;
  • Full-time or part-time;
  • Worker’s professional credentials;
  • Flexible v. rigid hours; and
  • Source of work tools and expenses.

Typically, if a worker spends 30 hours a week or 130 hours per month working on your business, there’s a good chance that authorities will classify them as an employee.

Uber Says It Will Fight Assembly Bill 5 Lawsuits

Despite the vote, Uber’s head attorney, Tony West, announced that the company will NOT treat its drivers, who are currently classified as independent contractors, as employees. He argued that the company didn’t provide rides but instead served “as a technology platform for several different types of digital marketplaces.” West also stressed that Uber is ready for the fight, pointing out that the company is “no stranger to legal battles.”

A Ripple Effect?

Keep an eye on what happens with Assembly Bill 5 in California. If it’s a success, generates more revenue for the state, and cuts back on government medical expenditures, expect other states to roll out similar statues.

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