Legislature OKs bill to curb ‘gig’ workers; Uber vows to ignore

A bill that could switch millions of California gig economy workers from independent contractors to employees passed the Legislature Wednesday and is headed to Gov. Gavin Newsom's desk.

Assembly Bill 5, which codifies the landmark 2018 decision in Dynamex Operations West, Inc. v. Superior Court, passed through the Assembly 61-16 on a concurrent vote following the Senate approving the bill 29-11 late Tuesday night. Newsom is expected to sign.

"Today the Legislature made it clear: we will not in good conscience allow free-riding businesses to profit off depriving millions of workers from basic employee rights that lead to a middle-class job," Assemblywoman Lorena Gonzalez, D-San Diego and the bill's author, said in a statement Wednesday.

The bill was aimed at companies whose business models depend on an inexpensive, majority-contractor workforce, in particular app-based, gig-economy businesses like Uber Technologies Inc., Lyft Inc. and DoorDash Inc., Gonzalez said as much in an opinion piece to the Washington Post on Wednesday.

"We have allowed a great many companies -- including "gig" companies such as Uber, Lyft, DoorDash, Handy and others -- to rely on a contract workforce, which enables them to skirt labor laws, exploit working people and leave taxpayers holding the bag," she wrote, further liking the gig model to "a modern-day sharecropping business."

Those companies have already laid down the groundwork to oppose the bill, which goes into effect Jan 1, pledging $30 million each on a ballot measure exempting them from legislation.

Uber Chief Legal Officer Tony West fired back in a statement Wednesday, saying the ride-hailing company would not classify its drivers as employees despite the bill's passing.

"Today drivers have control over when, where and how they work," West said. "We will continue to defend the innovation that makes that kind of choice, flexibility and independence a reality for over 200,000 drivers in California."

West said Uber drivers fall under the exemption outlined in Prong B of the Dynamex test because they operate outside of the company's "usual course of business," describing Uber as a "technology platform for several different types of digital marketplaces."

"Just because the test is hard does not mean we will not be able to pass it," West said.

Veena Dubal, an associate professor at UC Hastings College of the Law whose research focuses on the intersection of law and technology, accused West of "trying to have it both ways."

"Their legal position is completely disingenuous," Dubal said. "They know that without drivers, there's no Uber. Uber's a transportation company."

Under AB 5, workers are now presumed employees unless they pass a three-prong "ABC" test. Workers must be a) free from the hirer's control and direction, b) work outside the usual course of the hirer's business, and c) engage in the same kind of work as the hirer independently to be considered independent contractors.

"In taking this step, the California Legislature has emboldened regulators across the world to take the necessary steps to reign in precarious labor," Dubal said.

Workers who fall under the new classification will now receive basic labor rights including overtime pay, paid time off and unemployment benefits, aspects of employment law not covered by Dynamex, a case brought over claims of wage order violations. Dynamex Operations West, Inc. v. Superior Court, 2018 DJDAR 3856.

Though the state's division of labor standards enforcement later published an opinion letter concluding the Dynamex ABC test also applied to other labor code provisions, AB 5 effectively closes the gap.

"In the last year, there's been some case law pointing out the limits of Dynamex," said Sean Gentry, a partner at Ad Astra Law Group, LLP in San Francisco not involved in the matter. "So this new legislation makes it more universally applicable for all types of employment situations. That's good for both sides because it creates a lot more certainty."

Overcoming Prong B will prove the biggest hurdle for gig economy companies, said James Fessenden, a partner with Fisher Phillips in San Diego not involved in the matter. Most gig economy companies use workers on a freelance or on-demand basis to supplement their workforce. Companies will have to distinguish their business model from the worker's duties in order to pass.

"That's going to be the key question for some businesses, but the law puts the burden squarely on the shoulders of those business to prove that exemption," Fessenden said.

As Uber and other companies pursue legal and political options, a key amendment added late will give the state attorney general and any city attorneys of municipalities with more than 750,000 the right to prosecute employers who continue to misclassify workers under AB 5.

In a statement, San Francisco City Attorney Dennis Herrera applauded the move, which would give his office the power to sue for injunctive relief against many of gig economy companies headquartered in San Francisco, including Uber.

"Ensuring workers are treated fairly is one of the trademarks of this office," he said. "We have a track record of taking on such cases, whether it's making sure workers receive proper health care or are paid what they've earned."

Staff reporters Malcolm Maclachlan in Sacramento and Winston Cho in San Francisco contributed to this report.