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A California bill could upend the gig economy

Photo of car with Uber and Lyft logos in the rain.
Photo: Justin Sullivan/Getty Images

Rivals Uber and Lyft have joined forces, a rare event, to oppose a California legislature bill that would make it harder for them to classify workers as independent contractors in their home state.

Driving the news: A bill that would codify last year's Dynamex decision by the state's Supreme Court passed California's Assembly (51-11) last month and will soon be in the hands of the state Senate. That decision set a new, higher bar for companies that want to pay service providers as contractors rather than employees — a practice that the ride-hailing services' businesses are built upon.

Background: The Dynamex decision was the result of a 2005 lawsuit brought against a courier and delivery company of that name by its drivers, which it started to classify as independent contractors in 2004.

  • The California Supreme Court's eventual decision set a new standard for how to classify workers known as the ABC test, under which all three requirements need to be met for a worker to be classified as an independent contractor.
  • The three requirements are that the company isn’t controlling how the work is done, the work is outside of the company’s main business, and that the worker is in business for themselves.

What it is: AB5, which California's Senate will soon get to consider, would not only codify Dynamex's more stringent requirements into the state's laws, but also go beyond its original scope of wages and also guarantee other benefits and protections.

What they're saying: In a joint op-ed in the San Francisco Chronicle, the heads of Uber and Lyft argue that the flexibility of being independent contractors is crucial for their drivers. They also say they're prepared to provide drivers with additional benefits like paid time off, retirement planning, and education reimbursement, create a drivers' organization to speak on their behalf, andoffer a wage guarantee.

  • This idea shares some elements with the concept of "portable benefits" that has been proposed as a response to new workplace arrangements.

Yes, but: Critics say that the companies' proposals don't go far enough. AB5 sponsor Assemblywoman Lorena Gonzalez (D-San Diego) told the San Francisco Chronicle that they had previously suggested paying 2.5% of wages into a fund to cover benefits, far below the 6.2% of salaries contributed into Social Security alone.

Meanwhile: Assembly Republicans have sponsored a competing bill, AB71, that would roll back the Dynamex provisions. The bill is still being reviewed by an Assembly committee.

Go deeper: The on-demand economy is reshaping America's workforce