New Gig Work Law Leaves California Scrambling
This episode of the Journal is brought to you by business schooled a podcast by synchrony in season two of business schooled new host. Sarah Darby is meeting with with eight American entrepreneurs to find out how they're not just surviving but thriving to business school. Wherever you get your podcasts war over the last decade Gig has become a defining piece of the US economy? There's there's a growing number of people who are working jobs for platforms like Uber or lift. These people work sometimes as much as full-time jobs. But they actually aren't fulltime time employees. They don't get health insurance worker's COMP or other employees protections labor advocates lawmakers say that this is a misclassification showed that these companies are getting the benefit of workers labor without the employment costs and earlier this year California passed a sweeping new law. Aw meant in part to take aim at the GIG. Economy laid out a definition of who should be considered an employee that law goes goes into effect in just a few days but rather than bringing order and security to California's workforce. It has so far led to job cuts lawsuits in a standoff with the Tech Industry today on the show what California's new law means for the GIG economy and for everyone else Welcome to the Journal. Our show about money business and power. I'm Ryan Connection and I'm kate. Lima it's Thursday. December nineteenth. The origin story of this law doesn't actually they have anything to do with the GIG economy. It starts with a California Supreme Court case and that case was known as dynamex Christine my do covers California state politics in the economy. The dynamex case was brought by courriers. Who worked for the company and wanted to be treated as full time employees but when the court handed down a decision last year it gave guidance to all sorts of companies? What was determined in that court case was that there's this three three part test to determine whether or not somebody is truly a contractor or not the test is called the ABC test it's three criteria which Christine laid laid out as three questions one? Are they being directed by their employer. Their boss how to do the work and went to do the work. If your boss is not. I'm not telling you how to do your work. Then you're a contractor but that's only if you also answer yes to question. Two is the work that they're performing actually outside side the scope of the core business of the person. They're performing that work for so if your work is not court of the business and your boss isn't telling you how to do your job. You're a contractor but wait. There's a third question. Does this person actually operates kind of an independent business where they do the same kind of work doc for other employers in that setting so if you've got the freedom to have a lot of clients you're a contractor if you have a single contract with one business you're an employee that's the ABC test a contractor's work must not be directed by a boss courted. The business and the worker must have the freedom to have many many clients. If job doesn't pass this test then. The company has to treat the worker as an employee when the California California Supreme Court handed down the decision laying out this ABC test employers immediately felt like it could have huge implications with the court case ace seemingly everybody might fall under that right it could be. Doctors could be lawyers. Everybody who works as an independent contractor could be affected. Did it clearly was a monumental decision that really could change the nature of work for millions of Californians in California. There's around two point. Eight million people in in this category and these people's jobs cover the whole cross section of the state's economy the most visible example of contractors may be uber drivers or door dash drivers vers. Some of these people in the GIG economy but contractors also have included people like therapists or nurses. Who have the training to provide anesthesiology? She there's physical therapists strippers among them. And also freelance writers musicians and people who deliver newspapers your paper boy. That's right with so many industries possibly subject to this ruling businesses. Wanted clarity about what it would mean and they look to the legislature to do it. which led to the crafting crafting of the bill? It's currently causing this controversy in California. It's called a b five so that's where the legislature stepped in and they looked at ways in which they could could codify this and clarify certain situations in which people may or may not fall into that the proposal the California legislature came up with took that test from the state eight Supreme Court's ruling and started crafting it into law and almost immediately certain industries started lobbying for exemptions. There was plenty of opposition to the bill. Certainly the giants like Uber. Lip spent a lot of money. Lobbying against the bill while it was being debated Uber spent more than five hundred thousand dollars in lift along the same minds just in lobbyists to have their voice heard in this ongoing discussion. Some workers spoke out against the bill to saying they like the freedom and flexibility ability. That gig work gave them. But the bill's author Democratic assemblywoman named Lorena Gonzalez felt there were bigger issues at stake. She's from the San Diego go area and she's really just deeply steeped in the labor movement. Gonzalez the DYNAMEX decision opened up an opportunity to go after the rise of Gig work. She told me that really. Her Outlook in the legislature has always been to fight for the worker and fight for the little guy. We have a tremendous amount amount of working poor in California that to rely on food stamps. We have to rely on emergency room care because they don't have health care in so many of these workers are miss classified and that's a former Labor leader in San Diego and she's the daughter of an immigrant farm worker and a nurse who actually fought to unionize nights her workplace. She was a single mom for years. She's really got experience taking up issues that have been controversial in the past. Some of the bills that she's authored co authored include one of them that Titan vaccine exemptions so she's been the target of Anti Baxter's in past she helped pass the motor-voter law which automatically medically registers many people who show up at the DMV here in California and helped raise the minimum wage fifty dollars an hour. I'm proud to stand in solidarity garrity with my brothers and sisters who are saying. It's time it's time that they're treated with a little bit more respect. I hope Gonzales and other Democratic lawmakers the the bill was a chance to take aim at an innovation of the last decade companies that build apps for on demand services and employ a lot of contract workers to perform those services. You know one of the most poignant close I think from semblance speaker Anthony Rent known came in the midst of the debate about this bill I hear about folks talking to five the New Economy the GIG economy the innovation economy and he kind of said people talk all about how. Wow this is the GIG economy this is you know innovation at its best and his key money quote was and what the point he was trying to make was that there may be different names for how you do something thing whether it's through an APP or not or how workers are able to find their work and pick up jobs. The basic reality is that these companies pennies are kind of shirking their responsibility to pay people a living wage and to give them the protections that we as society in California have decided workers should half half and what is the criticism that lawmakers and labor activists have about how the current system works. There have been a lot of complaints from drivers specifically typically about how the company can utilize early set rates or cut rates or cut their reimbursements than there. Kind of at the mercy of the company to set that how much they're gonNa make any time you have executives for these companies getting billions of dollars in bonuses in any given year. And you have some drivers who say that sleeping in their cars. Because they don't have enough money to make ends meet. And you know some of these drivers make a couple of dollars on some trips because of the way that the APP and the system is structured hurt in Sacramento when the bill was being debated there were uber drivers in cars clogging the streets around the capital and honking their horns and and flying these banners. He you might have heard a lot of honking at the Capitol Today. And here's why over and lift drivers were rallying in support of the bill that would make them employees as contractors the plan on the when the bill was finally fully crafted it did include some exemptions boyer's and architects doctors and real estate agents people. Gonzales said had more bargaining power than the average worker but the bills still included a vast swath of the workforce contract workers the places like Uber and lift and also paper boys and strippers. Freelance writers truck drivers and this kind of work is growing at big companies companies. Contract workers can make up as much as fifty percent of the workforce it lets them shrink their employee base and pay less benefits at alphabet Google's the parent company. There are more outsource workers than fulltime employees. California's lot will affect a lot of these workers. Yes it was passed in September. We'll take effect in January with just a few months. In between businesses and workers across the state have been scrambling to figure out how how the new law applies to them. That's after the break. This episode of the Journal is brought to you by business school a podcast by synchrony synchrony is changing what's possible for people and businesses says with consumer financing solutions digital innovations in data insights. That help them grow in now. Business schooled is back with the new season and a new Host Sarah Darby. She's meeting with eight entrepreneurs to find out how they're not just surviving but thriving new season new host new things to learn on season. Two of business schooled. Subscribe wherever. You get your podcasts. Welcome back in the California legislature passed. AB Five to create more clarity for contract workers but the bill they passed left a lot of open questions a lot of employers not just startups but all kinds of employers. Don't know if the law applies to them and there are big implications if it does certainly many of them have costed this out and they estimate that it could add anywhere between fifteen and thirty percent to their employment costs so that's a big thing that they're grappling with so I spoke to one marriage and family therapist who owns a group practice and Glendale California and he services a lot of Armenian speakers and Armenian immigrants in the area and he has an office space he has a receptionist and staff that he pays and so then he takes a cut of each of the licensed therapist who come to his office in practice under his practice under the new law he essentially is going to have to classify them ause part time employees and he's not really sure what this is going to mean for his bottom line. He's going to try it but he did say that he thinks that this is going to add somewhere between fifteen to twenty percent went to his costs and he may either have to let go these licensed therapist an future or downsize as business. He's not really sure what he's GonNa do. Some workers are in the same position facing down uncertainty this week. Vox Media's espy nation. A sports blog said it would be ending contracts. Thanks for about two hundred contractors. It's used in California. Some of those contractors can join the staff others will be terminated and there are consequences for all sorts of other contract workers even ones who feel like independent work is beneficial so I spoke to tongue men who is a truck driver and he's been an independent truckdriver for more than fifteen years. At this point he can make enough in a year and fat a certain point in the year. He's made enough to sustain his family. He'll just take the rest of the year off off. He really always loved the flexibility. He tells me he was able to raise his kids and cut down on childcare costs with his wife because he was able to be home when she was at work and he almost exclusively finds his work through a trucking broker. Which is somebody a company who kind of lines up jobs for him tells him where and I went to be what the specs on the job are? How much is going to get paid? And so he's always lined up his jobs like this and under the new law he can no longer do that. And you know marches busy season. He tells me if he can't find enough work to fulfil his need by January or February. He's going to have to move out of state with his family. How does Lorraina Gonzales respond to the criticism that this law is going to encumber people bowl? Who had really enjoyed the freedoms of freelance and contract work and she thinks that that's clear that people are concerned about their own situation -Tuation and she understands that but that there are a whole host of people also who are going to benefit from this and she's not willing to wipe that out? I think for the people who support reported this law and continue to support it. The goal is probably to rein in some of the excesses of the GIG economy. Some of the fundamental changes that. We've I've seen in the past decade of how people do work and how they're compensated for it and how they're protected when they can't do the work for example or when when they get injured and so I think applying more and more protections to those people within that category who maybe have the least power and the least ability to negotiate and advocate on their own behalf but Gonzalez his goal of giving more power to people like Uber Drivers. This might not happen. Because while a lot of other companies are scrambling to comply with the law Uber and lift the companies. That help spur all this debate. Eight and concern about the status of freelance workers. Say this new law doesn't apply to them. Uber and lift took a pretty I would say contentious stance in terms of saying that they just are not gonNa really change anything about the way they do their business. They don't think the law applies. They're not going to reclassify their workers and come January first. They're not Planning on making any of their drivers employees at this point these companies consider themselves tech platforms. And if you remember what the. ABC test says says someone's only considered an employee if their work is core to the business and Uber says the driving. A car shouldn't be considered sittard core to its business because the test is hard doesn't mean that we will not be able to pass it. This isn't Uber's chief. Legal officer explaining explaining the company's position on a media call in fact. Several previous rulings have found. That drivers were is outside. The usual course of Hoover's there's business which is serving as a technology platform for several different types of digital marketplaces for its part lift. Says it's looking looking to find ways for drivers to get benefits. While maintaining the flexibility. They have as contractors but both Lifton Uber are planning on fighting. Ab Five Live by bypassing the lawmakers and taking it to voters Uber Lift and a number of other GIG economy companies have put a hundred and ten million Leeann dollars into a campaign account for a ballot measure that they promised for next year. They say they're gonNA start collecting signatures in January and they're proposing that essentially they would just be carved out of this law but it wouldn't apply to them and they're hoping that they can take their case directly to the California voters if this ballot measure were to move forward and pass ass it would mean that the companies that were targeted by this law in the end would get out of it that will remain up to the voters of California. The very state state that gave rise to Gig work. Seems like like there's some irony here in that Silicon Valley in California California have have created companies like Uber and lift and now lawmakers are taking aim at at the very heart of their business model. Yeah I mean it was the birthplace of companies like this that gave rise to the GIG economy that spread very quickly and really re really thought we think of the nature of work and people who work and how they're doing that. I think it really goes to the heart of California as a place of innovation. Vision is a place of kind of new ways of thinking and doing things and business models. I think that a lot of times because of the speed of innovation in California on Ya sometimes legislators can be caught by surprise or they may need to play catch up in terms of regulations for new emerging technologies. California has always been seen as a trailblazer in terms of public policy. And so there are a couple states including New York that that are considering similar legislation. And there's the American Action Forum which is kind of a conservative sister group of the American Action Network which has ties to the Republican Party. But they put out a study saying that if this type of policy was implemented nationwide this ABC test ab five codifies would include kind of more than thirteen million workers nationwide who are responsible for more than one point six trillion dollars economic output. You can say what you will well about the organization and kind of its leanings. But I think that the bottom line is it's clear at this type of policy catches on it would have major implications for the economic life of millions of people. That's all for for today. Thursday December nineteenth the journal is a co production of Gimblett and the Wall Street Journal special. Thanks to Lauren Weber for additional reporting. If if you liked the show follow us on spotify or wherever you get your podcast. He come out every weekday afternoon. Thanks for listening. See You tomorrow.