What Is Ab 5?

AB 5 closes a major loophole in US labor law, employee misclassification. Major protections in US and California labor law — including minimum wage and overtime laws, the right to join a union, workplace safety protections, and more — cover most people classified as employees. However, many companies, including gig economy darlings like Uber and Lyft — but also many more “traditional” companies — misleadingly classify their workers as “independent contractors” to get around these laws.

Of course, it makes sense to create a separate legal category for people who are actually independent contractors: a self-employed plumber or accountant who directly establishes contracts with different clients and sets their own hours, rates, and mode of work while having to invest in their own tools and capital. But Uber and Lyft drivers are not, by any reasonable definition, “independent contractors,” despite what the companies may claim.

Drivers rely entirely on the companies to arrange contracts with clients — riders can only call a car through the company app, and drivers are not able to negotiate with clients. Companies set rates, extracting a per-ride price from the client based on an algorithm, and giving the driver a (small) cut of the revenue — without drivers having any say over this.

Uber and Lyft have control over who can be a driver, kicking drivers off the app for various minor infractions — just as a traditional boss can fire a worker for any reason whatsoever under our country’s system of “at-will” employment (unless the worker is represented by a union). And the much-vaunted “flexibility” of gig work is mostly an illusion: if drivers want to get enough clients quickly enough to make a decent living, they have to work certain hours that are always the busiest, such as rush hour or late weekend nights.

AB 5 would eliminate this loophole by instituting a strict test to determine if workers are employees or independent contractors. In effect, according to AB 5, a worker is classified as an employee if a worker’s activity is controlled by a company, if they are doing work that is central to the company’s business, or the worker has an independent business in that industry. Clearly, Uber and Lyft drivers are doing work central to their companies’ businesses, and therefore would no longer be independent contractors if AB 5 passes.

Why Bosses Love Misclassification

The results of this arrangement are increased profits and flexibility for the companies, and poverty wages, terrible conditions, and debt for the drivers. Companies love misclassifying employees as independent contractors because it displaces the major risks of the enterprise onto the drivers while maintaining all of the benefits of being, in reality, dictatorial bosses.

Since drivers are not covered by minimum wage laws and are paid per ride instead of per hour, all the time that drivers might spend not driving a client — idling waiting for a new job, stuck in traffic on the way to pick someone up, time spent dealing with a traffic ticket or accident — are free for the company. But because the driver is missing out on rides during those times, they are essentially wasting time and losing money.

Since drivers are responsible for their own cars, companies are relieved of the enormous costs of maintenance, repairs, and insurance that come with driving a car all day long. At the end of the day, along with taxes, these costs alone can cut what might seem like a decent living to an effective $3 per hour rate over the long run. Ending misclassification would mean that drivers’ average hourly pay would at least meet minimum wage laws, $12 per hour in California, while being eligible for overtime benefits.

Many drivers also take out loans to get the cars for the job, sometimes through car-loan schemes from Uber and Lyft. This means that drivers who were enticed by the companies’ advertisements of high incomes and flexible hours are, once they realize how little money they actually make, stuck with the debt incurred by the car.

Finally, Uber and Lyft avoid a major responsibility of traditional employment: health and safety regulations, and worst of all, unionization. Since the drivers are not legally employees, they can’t unionize — collective bargaining of independent contractors is treated by labor law as cartel-like price-fixing. And independent contractors aren’t protected by occupational health and safety codes (OSHA).

The company reaps the benefits of the drivers’ “independence” — displacing risk and capital and maintenance costs onto the drivers — while retaining all the benefits of real employment: setting rates, controlling the workforce through discipline and incentives, and keeping as much of the profits as they want. In fact, this is the whole business model of the “disruptive” gig economy in the first place: use an app that allows companies to retain control over prices and wages while skirting labor law and market risks. And this misclassification scheme is not new to Uber and Lyft. Gig economy companies like Postmates and DoorDash and other “traditional” companies like port trucking, FedEx, do the same.

Ballot Measure Bullies

The California legislative session ends on September 13, and Governor Newsom and leaders of the Democratic Party supermajority in the state legislature seem willing to pass AB 5. Nevertheless, industry-friendly Democrats are opposing the legislation.

Most notably, former Senator Barbara Boxer revealed this week that she is being paid by Lyft to help them fight AB 5. Democratic socialist congresswoman Alexandria Ocasio-Cortez rightly called Boxer’s turn to lucrative corporate lobbying, a commonplace practice for politicians of both parties, an “abuse of power [and] a stain on public service.”

Surprisingly, Kamala Harris has joined Elizabeth Warren and Bernie Sanders in publicly backing AB 5, despite Harris’s close relationship with her brother-in-law Tony West, Uber’s chief legal officer and company spokesman against AB 5. The most likely explanation for this is that working-class politics are rising in this country, rather than Harris and other candidates looking for support in the California Democratic primary here next spring having a change of heart.

Uber, Lyft, and other companies are fighting tooth and nail to stop AB 5, but they are also preparing a backup plan in the event it passes: they’ve already gathered as much as $90 million to put a statewide measure on the ballot in 2020 that would effectively invalidate the regulation. And the reality is, they might succeed.

In California politics, major corporations and billionaires have been able to use ballot measures to override the legislature by spending hundreds of millions on campaign operations and advertising for direct ballot measures or referenda. The power of money in ballot measure fights was evident in last year’s Proposition 10 fight: the measure supported by unions, tenants’ groups, and the Democratic Socialists of America would have expanded rent control, something that a majority of Californians support. But the real estate industry spent over $75 million on misleading ads and scare tactics that convinced over 60 perccent of voters to reject the measure.

And even when corporate-backed measures never actually make it to the ballot, companies’ capacity to launch such campaigns has been enough to bully the legislature into submission. For example, in 2018 soda companies spent millions to launch a ballot measure that, among other restrictions, banned health-oriented taxes on soda in the state — the threat of an even harsher law passing through a statewide referendum pressured elected legislators to pass their own statewide ban, AB 1838.

Thanks to California’s reliance on statewide referendums, the capacity of tech companies, landlords, Big Pharma, the oil industry, and eccentric billionaires to buy politicians’ loyalty through nearly unlimited campaign and PAC contributions is supplemented by their power to effectively buy statewide ballot measures.

How Can We Beat Them?

Legislators in Sacramento have voiced support for AB 5, but the companies are lobbying hard for a compromise or some watered-down version.

If AB 5 does pass and companies put up a ballot measure to undo it, workers across the state will have to fight back, in the workplace and at the ballot box. Uber and Lyft drivers have already organized multiple strikes, protests, and boycotts, and rideshare users, politicians, and progressive organizations should support these efforts going forward.

Since misclassification is part of a broader attack on workers’ rights, unions should continue leading the charge for AB 5 while doing what they can to support organizing efforts of gig economy workers.

And workers of all kinds should be fighting to elect Bernie Sanders in 2020 since his Workplace Democracy Plan would not only guarantee the rights of AB 5 across all fifty states, but it would expand workers’ rights and help them organize strong unions while curbing the ability of companies to bust unions and abuse their employees. In addition to protecting gig workers, Sanders’s proposal would establish powerful sector-wide bargaining for unions, expand labor protections to domestic and agricultural workers (who are still excluded from the 1935 National Labor Relations Act as part of a racist deal made by then-President Roosevelt with southern “Dixiecrats”), eliminate “right to work” laws, and make it easier for workers to form unions at the workplace. Alongside a reinvigorated labor movement, Sanders’s plan, the most ambitious program for workers’ rights ever proposed by a major presidential candidate, would dramatically increase the power of workers over their bosses.

So far, no major union in California has backed Sanders, but a group called Labor for Bernie, a grassroots effort led by rank-and-file union members who support Sanders, is organizing within the labor movement to pressure unions to endorse the most worker-friendly major presidential candidate in US history.

California has a unique opportunity to advance Sanders and his agenda, since, in addition to being by far the largest state in the union, our primary was moved up to March 3, 2020 (“Super Tuesday”). If Sanders does well in California, his candidacy and the movement he represents will be well on the way to the Democratic Party’s nomination. Since Sanders is already beating Trump in every national poll, he is not only the most worker-friendly candidate in the election, but the best chance we have of getting rid of Trump.

Uber and Lyft know how much money they would lose thanks to AB 5 expanding rights to their drivers — rights all workers deserve. Uber even admitted this in a SEC filing, saying that correctly classifying drivers as employees would cost Uber “significant additional expenses for compensating Drivers, potentially including expenses associated with the application of wage and hour laws (including minimum wage, overtime, and meal and rest period requirements), employee benefits, social security contributions, taxes, and penalties.”

Most Californians would agree that workers shouldn’t be forced to drive long hours, get paid poverty wages, be forced to pick up the primary costs of their employers’ businesses, while getting almost no protections from state or federal labor law. But Silicon Valley sultans are able to buy, cajole, and bully our government into depriving those rights from all sorts of workers. This is a key reason that Silicon Valley is so profitable in the first place.

The contest has national implications. If Uber and Lyft win the fight over AB 5, it will inspire similar and more aggressive attacks on all workers’ rights across the country. But with the reemergence of labor militancy since 2018 and a democratic socialist candidate for president helping organize the workers’ fightback, there’s a chance for gig workers to help lead the charge in building a society that puts workers’ health and wellbeing above billionaires’ profits.