California’s Contractor Law Manages to Be Bad for Workers, Customers and Companies
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Commentary

California’s Contractor Law Manages to Be Bad for Workers, Customers and Companies

California risks killing off the new economy by dragging it back to an obsolete approach to work that fits poorly with today’s technology-based jobs.

California’s is often viewed as the nation’s leading state.

Unfortunately, its latest piece of landmark legislation risks lassoing the flourishing gig economy and dragging it back to the pre-internet age under the guise of protecting workers.

California’s Assembly Bill 5, headed to Gov. Gavin Newsom’s desk (and he’s said he’ll sign it), redefines how companies can define independent contractors and employees, which could dramatically alter the state’s economy.

The internet-based industries and services that form the on-demand or “freelance” economy have risen to fill holes in the market, creating opportunities for workers and consumers and boosting local economies across the state.

Digital platforms like Upwork, TaskRabbit and ridesharing companies like Uber and Lyft connect workers, goods and services to customers by offering contract work to part-timers, temporary workers and even some full-timers without the structures of traditional, full-time work.

This “gig” work fills market demand dynamically, something traditional work often fails to do.

For example, Uber and Lyft drivers make more money and have more opportunities when they choose to work during surges of consumer demand, making it a win-win for drivers, ride-hailing customers and companies.

Many drivers work for both companies so they can choose the best routes and trips from each, based on their locations at a given time. Drivers have the flexibility to choose their own hours, so one may elect to work 10 hours one week and 50 hours the next.

But this high independence comes with tradeoffs, including lower pay and more uncertainty than you’d get from what we think of as traditional jobs. Gig workers who elect to work during low demand periods don’t make a lot of money. They have no employment guarantees and typically no benefits, health insurance, paid leave or pension plans.

AB 5 seeks to change all that, requiring companies whose workers carry out the core missions of their businesses—like rides-sharing companies—to treat them as employees rather than contractors. AB 5’s well-intentioned supporters want workers get the benefits of full-time employees, with employers paying Social Security, Medicare, health benefits, guaranteed minimum wage, overtime pay, sick leave, and more.

Unfortunately, such a move subverts the gig economy’s “pick-up work” appeal— workers flexing hours as desired and meeting consumer demand. Moreover, AB 5 won’t achieve its aims and will bring several negative unintended consequences as it essentially rids the economy of an alternative work model many now depend on.

Many gig workers who have been putting in 40-plus hours a week would likely see their hours reduced to around 30 per week as the companies look for ways to keep costs down and prices lower, in part, by avoiding hiring full-time employees. Many workers who value moonlighting and making money beyond their full-time positions would be hurt too. Full-time workers who pick up a handful of driving shifts at peak hours to make extra money, part-timers like students, and retirees—who make up the majority of gig workers and often already have benefits to supplement their incomes—would all have fewer opportunities.

Customers will also feel the impact. Since, under AB 5, an Uber driver who now elects to clock in at 3 a.m. would be guaranteed a minimum wage— even if the driver is in a location where no customers are seeking rides— rideshare companies are likely to black out unprofitable hours and locations. This is liable to leave consumers—especially rural and suburban ones—underserved. Meanwhile, urban customers can expect longer waits and more-expensive rides as the companies pass along their higher costs onto customers.

Recognizing the issues drivers face, and struggling to maintain their lean and efficient business models, Uber and Lyft had been offering drivers pay raises, a fund for benefits and collective bargaining rights. Such an approach could tailor potential solutions to the actual problems raised by drivers instead of scratching the entire gig economy model as AB 5 threatens to do.

Now, California risks killing off the new economy by dragging it back to an obsolete approach to work that fits poorly with today’s technology-based jobs. When a piece of legislation is bad for the workers, customers and companies involved, it’s a bad idea.

This column was originally published in the Los Angeles Daily News.

Adrian Moore

Adrian Moore, Ph.D., is vice president of policy at Reason Foundation, a non-profit think tank advancing free minds and free markets.

Teri P. Moore is a policy analyst and editor at Reason Foundation.