Home #Hwoodtimes Assembly Bill 5 (AB5) is blowing up California’s gig economy

Assembly Bill 5 (AB5) is blowing up California’s gig economy

Assemblywoman Lorena Gonzalez (D-San Diego) speaks at a rally in July for her measure limiting when companies can label workers as independent contractors. The bill was passed and signed by Gov. Gavin Newsom in September, but it hasn’t pleased everyone.(Rich Pedroncelli/Associated Press)

The bill is creating unprecedented havoc for independent workers in California

by Liza Carbe and Jean-Pierre Durand

Los Angeles, CA (The Hollywood Times) 2/16/20 – AB5, the bill that was initiated to provide employee benefits to Lyft and Uber drivers, is now creating negative and crippling effects among many independent contractors. The bill was initially introduced in summer 2019 by former labor leader and Assemblywoman Lorena Gonzalez (D – San Diego), having been written by the AFL-CIO to force companies like Lyft and Uber to hire people as full-time employees and not independent contractors. The original desired effect would be that all companies and employers would have to provide employees with medical and unemployment benefits. The pretext for this law was the California Supreme Court Decision in the “matter of Dynamex Operations West, Inc. vs. Superior Court of Los Angeles, which rejected the Borello test for determining whether workers should be classified as either employees or independent contractors” (1) in favor of a new “ABC rule” (explanatory link provided below).  In short, the bill has short-circuited many lives of independent contractors, including many in the entertainment business, in a brutal and unexpected way.

Companies like Lyft and Uber were created as an alternative to the traditional taxi. These new entities allow people to use their own vehicles when providing rides, typically at a lower cost to the passengers than a taxi. The drivers need proof of insurance, a driver’s license, and a vehicle of a certain standard in order to work for these companies.  They then fill out an application and, once accepted, can pick up fares through the company app.

The “gig economy” is the platform upon which these and other independent companies like them exist. This “gig economy” allows people who need part-time work the flexibility to work whenever and wherever they want. For actors and musicians that have an ever-changing schedule, it’s a nice way to make money when things are slow without committing to a full time job. There are also many people who are retired but also like to be able to make money without having to commit to a certain schedule or location. There are people from all walks of life who enjoy the flexibility to work where and when they choose.

NYC cab drivers rallied in front of the Uber and Lyft offices in Long Island City, New York, protesting Uber’s IPO. (Photo: Gabriele Holtermann-Gorden/Pacific Press/LightRocket via Getty Images)

Because this has been the working paradigm for these companies, Uber and Lyft drivers are independent contractors. They are responsible for declaring their income and paying into their Social Security and Medicare when they file their taxes. The employees are independent contractors, therefore the companies for whom they work provide no benefits. In this regard, they are similar to musicians, to dance companies, to interpreters, and to scores of other independent workers who make their own schedules and choose to work independently, outside of the protections of a union (which in the case of most affected workers, does not exist or barely exists).

AB5 was written by the AFL-CIO (American Federation of Labor and Congress of Industrial Organizations) after a case involving two delivery drivers who sued Dynamex for classifying them as independent contractors instead of employees.  These two delivery drivers thought that it was unfair for companies that have become as big and profitable as Lyft and Uber to not provide benefits to their employees. There was controversy about the bill within this Lyft and Uber community. There are the people that like being independent contractors and don’t want to be employees, and have to deal with the scrutiny, the paperwork and everything else that comes with being a full-time employee. Then, there are those that DO want the benefits that come with being an full-time employee.

Meanwhile, a real disaster has emerged outside of this Uber and Lyft microcosm thanks to this bill. The net effects, intended or unintended, of AB5 are now affecting ALL California independent contractors, freelancers and small businesses. Artists, musicians, actors, dancers, nurses, coaches, teachers, tutors and a whole host of other independent workers, videographers and caricaturists, transcriptionists and interpreters, technicians and engineers, analysts, consultants and small business owners are now having their lives turned upside down. Businesses are shutting down or making drastic, unexpected and expensive changes to their business model to accommodate this bill, which appears to have been passed with little or no input from anyone besides those in unions, who advocated only for the interests of their members, with apparent scant regard to the millions that would be affected outside of a union paradigm.

State Assemblyman Kevin Kiley (R-Sacramento) speaks at the beginning of a rally to repeal Assembly Bill 5 on Tuesday in Sacramento. (Photo: Mike Wolcott — Enterprise-Record)

Assemblyman Kevin Kiley (R) said at the “Repeal AB5” rally that happened at the State Capitol on January 28th, 2020: “Perhaps never in our history has a legislative enactment so shattered the lives of so many people, or so shaken the foundations of our pluralist society”. 

Real-life fallout? For example, under AB5, freelance writers and photographers are limited to 35 submissions annually per media outlet, effectively making it impossible for them to survive. To put that in perspective, many photographers can easily submit 35 photos in a week or even a day.

The musician that hires other musicians to play in their band, the yoga/dance studio that hires instructors, and the small theater companies that hire actors to perform in their productions, as well as similar businesses are now facing the possibility of having to treat these independent workers as employees, providing health and unemployment benefits to the people they hire. The small-business owner that has part-time employees is now facing the same dilemma. California bands are currently re-evaluating their lineups and touring schedules.  Once-thriving dance studios are laying off their part-time dancers. Theaters are reducing or cancelling their performance seasons. All of this has been snowballing since mid-January, when the implications of the signed bill started to become apparent and a state-wide panic began. Most if not all of these independent businesses and owners, all of which are small businesses (so often heroically referred to as “the engine of American growth” on both sides of the political aisle) are not in a financial position to make this switch.

A musician often works for many bands and will record sessions for a wide variety of clients at many different studios. A yoga or dance instructor will teach at many small studios, which do not begin to have the means to provide benefits to the teachers that work there. This is the same situation for the small theaters and small businesses. They are not big businesses like Lyft and Uber. Nor do the people that work for them solely work for one employer. There is no one large company called “Independent Yoga Instructors” where all the trained yoga teachers go and report everyday. A large governing body doesn’t exist for them or any of the other 56 millions plus independent contractors and freelancers in the USA.

(Photo: Megan Hernbroth/Business Insider)

The negative repercussions of this bill have already started to affect these communities. Yoga and dance studios traditionally hire quite a few different teachers so they can provide a variety of teaching styles to their students. Fearing the repercussions of AB5, some of these teachers are already being let go. Small business owners are starting to lay off some of their vital part-time employees and others are considering how to run their businesses with a skeleton crew.  Many of the independent contractors and small business owners work on a small profit margin and having to supply benefits to the people they hire is simply not possible if they want to stay in business. And these freelancers, who have worked under this independent paradigm for years, are seeing their work dwindle and incomes slashed, with no recourse, and with apparent little voice in the process.

Music producers, composers and contractors can hire a wide-ranging number of musicians for different projects. They may hire some musicians only one time. The looming possibility of having to provide benefits for all of these once-independent contractors is already causing California musicians to reconsider how they work. Performing musicians will be using more prerecorded tracks instead of hiring other musicians, and composers will utilize their sample libraries to replace musicians instead of hiring live musicians to play the parts.

The bill is set up in a way that makes the business owner liable if they are not supplying benefits to the people that they hire.  Most employers do not want to put themselves in that type of compromised situation. And the notion of incorporating or becoming an LLC or a corporation is no guarantee of legal protection. On first blush, for some independents, the idea of having benefits sounds appealing. However, on further examining the question of who is supposed to provide these benefits, the reality starts to sink in. Not only are these people who hire not in any position to pay benefits, but that business may not be in a position to hire you at all anymore.  So the independent now has no benefits and no work.

(Photo: Getty Images: Justin Sullivan / Staff)

AB5 clearly was not properly vetted before being signed into law. There were many who were raising red flags right before and after it was signed on September 18, 2019.  Some of those concerned wrote Governor Newsom urging him not to sign it into law without further vetting. Similar pleas were made to Assemblywoman Lorena Gonzalez. But at that time, those concerns fell on deaf ears. Not enough of the general California population knew about AB5 and its consequences in time to stop it.

The intent was supposedly to make Lyft and Uber, who have become large, well-funded and established businesses take care of their employees. Some feel that these companies were taking advantage of the “gig economy” and should be working under a more “responsible” corporate business model. The implementation of this bill may be an inconvenience for these companies and others like them, but the larger legal implications will effectively make it impossible for many freelancers, independent contractors and small businesses to survive. If small businesses fold, then there will be no one to hire the independent contractors and freelancers.  For the arts community, from musicians to photographers to filmmakers to festival producers, especially those who do not work under a union and choose to continue not to do so, this law has been disproportionately punitive.

It has been the choice of Independent contractors and freelancers to work for themselves and not be a full time employee working for someone else. These people are a large and vital force in our communities.

Drivers for ride-hailing services demonstrating outside Uber headquarters in San Francisco last month. The protest was organized in support of a bill in the State Legislature that would extend employee status to many gig-economy workers. (Photo: Justin Sullivan/Getty Images)

The following is taken from the California Globe article January 28th 2020 written by Katy Grimes: “The study, conducted by an independent research firm and commissioned in partnership by Upwork and Freelancers Union, surveyed more than 6,000 U.S. workers.

The five most notable findings reveal:

  • Americans are spending more time freelancing: Average weekly hours spent freelancing increased 72 million hours per week from 998 million in 2015 to more than one billion hours per week of freelancing this year.
  • Technology is making it easier to find work: 64% of freelancers found work online, a 22 point increase since 2014.
  • Lifestyle matters most: Both freelancers and non-freelancers prioritize achieving the lifestyle that they want but freelancers are more likely to get it.​ 51% of all freelancers say no amount of money would get them to take a traditional job.
  • Freelancers are more politically active: In this election season, freelancers indicated they are 19 points more politically active than non-freelancers. More than seven in 10 (72%) said they’d be willing to cross party lines to vote for candidates who support freelancer interests.
  • Freelancers place more value on skills training: ​93% of freelancers with a four-year college degree said training was useful versus only 79% who said their college education was useful to the work they do now; and 70% of full-time freelancers participated in skills training in the past six months compared to only 49% of full-time non-freelancers.

Although Governor Newsom and others who support AB5 may believe that they are protecting freelancers from being exploited, AB5 effectively takes the choice of the individual away and forces them into a working environment that most freelancers have actively and consciously avoided.

There is an ongoing and bipartisan movement to repeal AB5.  This bill is adversely affecting Democrats, Republicans, and Independents alike. And even as there is talk that a Democratic super-majority will defeat any repeal, Assemblywoman Gonzalez appears to be listening, and is working to add exemptions that have been demanded since before the bill was signed. So the two paths currently being explored are full repeal, and if not, a series of exemptions in various fields. If you believe in a representative democracy and believe your voice needs to be heard, many press outlets and advocacy groups are collecting stories of the adverse affects of AB5.  Here are some more resources to study and contacts to whom to reach out:

Here’s more info on the Dynamex ruling and the ensuing and onerous “ABC” classification test for California employees:

https://www.wagehourblog.com/2018/04/articles/california-wage-hour-law/california-supreme-court-adopts-abc-test-for-independent-contractors/

LA Times article on the effect of AB5 on the Arts Community (including a solicitation of stories from affected freelancers):

https://www.latimes.com/entertainment-arts/story/2020-01-29/ab5-independent-contractor-california-2020-arts

Indie musician and music biz maven Ari Herstand took a meeting with Lorena Gonzalez – here’s that story and why he feels that efforts as of mid-January have been allegedly stymied by IATSE (caution: there’s adult language in his breakdown here):

https://aristake.com/

Finally, social media has really exploded on this issue particularly on Facebook.  Facebook groups to join there are:

https://www.facebook.com/groups/FreelancersAgainstAB5/

Freelancers & Gigging Musicians Fighting AB5:

https://www.facebook.com/groups/842588909495326/

Fight AB5:

https://www.facebook.com/groups/815158662240119/

Contractors Against AB5

https://www.facebook.com/groups/2485077011558888/

CPA Sara Kustiner Pedri has written a letter with some important up-to-the-minute information, including some in-depth but still easy-to-understand tax and financial analysis to share – here’s a link:

https://www.facebook.com/sara.k.pedri/posts/10219908430854207

Above: Assemblywoman Lorena Gonzalez rallies workers for the passage of Assembly Bill 5 she authored that would limit when businesses and companies could classify employees as independent contractors, Aug. 29, 2019.

Finally, as of Saturday Feb 14, 2020 (per writer Brittany Maldonado’s post on Freelancers Against AB5), Democrat State Senator Cathleen Galgani has proposed what Maldonado believes is “the first AB5 cleanup bill by a Democratic member of the legislature besides LG” (Lorena Gonzalez). Here is the proposed bill:

https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200SB1039&fbclid=IwAR2eUJFbvU4RPxhqYHoHrW56ByHCLJxz-Qw3bxFBV4Xmzm2Pavl5YOkA520

 

Citations:

  1. https://www.laboremploymentlawblog.com/2018/05/articles/class-actions/dynamex-decision-independent-contractors/