There has been plenty of discussions about a proper review of AB-5 and what the law entails for gig workers. The bill that the legislature passed in 2019 has made plenty of waves throughout the gig industry. You may think of musicians when you hear the word “gig,”. However, this term describes a type of economic system and business that has become increasingly popular in the last few decades. In this system, called a gig economy, workers with part-time schedules are temporary or classified as independent contractors who work in large numbers. Many industries have turned to gig workers. These industries include standardized testing and editorial services. Also, some others include school districts to niche markets such as long-distance trucking and travel or delivery services such as Uber, Lyft, and DoorDash.
The Review of AB-5
The rise in the number of gig workers has raised questions that have ended up in court. For example, a case within the trucking industry regarding California’s AB-5 made it to the United States Supreme Court. However, the U.S. Solicitor General recommended to the Supreme Court that it not conduct an AB-5 review. This California Assembly Bill, if enacted, would affect all manner of industries, including long-distance trucking companies and drivers.
What AB-5 Does
California Assembly Bill 5, generally known as AB-5, became effective on Jan. 1, 2020. Also known as the “gig worker” bill, it mandates California companies that hire freelancers or independent contractors to categorize them as employees based on criteria.
With AB-5, companies must present a three-point test, also called the ABC test, to prove that workers are, in fact, independent and are not company employees. The points are:
- The worker is handling tasks that are outside a company’s expected course and type of business activities
- A employee can undertake tasks and offer services without company direction or management
- A worker is routinely and generally involved in tasks and activities that are part of a trade or occupation established independently of a company but that are of the same type of duties on which a company focuses
This bill would significantly impact long-haul drivers and truck insurance as well as many other niche areas such as freelance journalism and mobile computer technicians. California’s AB-5 also affected app-based drivers, such as those who work for Uber, Lyft, and DoorDash. Because of a significant backlash against AB-5, California voters approved Proposition 22 later in 2020, which exempts app-based drivers from AB-5 requirements.
In the case of app-based drivers, they went to court to win employee status, claiming their services are vital to the companies’ success. However, not everyone saw the benefits of AB-5. The issue has proven quite complex.
How AB-5 Affects Workers
Some workers do not relish having to accept employee status. There are pros and cons to this bill.
Pros to AB-5
- Gives workers the right to employee benefits, a minimum wage, and other perks
- Creates more equity between employees and independent contractors or gig workers
Cons to AB-5
California’s AB-5 has an apparent direct affect on independent contractors. Now, a reclassified gig worker can no longer choose when and where to work.
Truck insurance would be affected for long-distance truck drivers and trucking companies, as would many aspects of operations, including scheduling and logistics planning. Independent truck drivers reclassified as employees would need to be covered by the company. However, those same drivers might lose some freedom in choosing their driving gigs.
How AB-5 Affects Companies
As AB-5 requires businesses to count independent contractors as employees, companies could be required to spend more money on benefits such as minimum wages, workers compensation, truck insurance, and other types of coverage. Such a significant reclassification would raise overall costs, which would then pass on to consumers through higher retail prices.
Industry analysts say AB-5 could potentially bankrupt some companies that depend on drivers, especially businesses such as Uber and Lyft, which are now exempt. Furthermore, this law could, in effect, wipe out a gig economy system. This point may be positive as well as negative in multiple ways.
Reaction to California’s AB-5 saw many people filing lawsuits in courts, and two made it to the Supreme Court. The case against AB-5 filed by Cal Cartage Transportation Express, a business that services multiple California ports, went to the U.S. Supreme Court.
The Supreme Court issued an AB-5 review rejection for this case after the U.S. Solicitor General argued for denial of the writ of certiorari. However, the California Trucking Association also seeks an AB-5 review by the Supreme Court. Furthermore, Cal Cartage could raise its case against AB-5 again in courts in California or regional federal courts. This issue is ongoing, and there is no indication there will be a settlement soon. However, a definitive ruling from the Supreme Court would resolve the issue.
The particular challenge to the trucking industry with AB-5 and its three-point ABC test comes from the point that if gig workers are engaged in the same type of work as the company’s primary business, they are employees. Independent owner-operators are naturally involved in the same business as trucking companies. On the other hand, an independent janitor working for a trucking company would not be subject to AB-5.
The contentiousness of AB-5, with protests from businesses and independent contractor drivers in multiple industries, is continuing. There is another case seeking a review by the U.S. Supreme Court. Thus, the issue will be in the spotlight for a while. Weighing the matter of independence with the need for fair treatment of workers is a serious issue. Companies and gig workers in many industries would be affected, and many are watching to see what the Supreme Court will decide about California’s AB-5.
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