Businesses Respond to Recent California Labor Law

By Adriaan Brits Tuesday, September 1, 2020

Since the beginning of 2020, Californian businesses have been affected by the new California labor law bills signed by Governor Gavin Newsom. One of the most contentious of these for employers is the contractor bill, also known as Assembly Bill 5 (AB 5).

The most notable companies affected are those with tech apps whose workers rely on gigs for work. Included in these are companies are Uber, Lyft, and Postmates. Their workers feel exploited because they don’t have any of the usual benefits offered to other employees.

However, some freelancers note that the bill will force their clients to cut down on the amount of work they get, and truckers recently won an exemption from the bill in court. Meanwhile, tech giants are not taking this bill lying down. Uber, Lyft, DoorDash, Postmates, and Instacart are fighting this jointly and initially sponsored a ballot initiative to have them exempted from the law.

The Court Decision That Started the Process

Many companies classify their workers as independent contractors to cut labor costs, and this practice has been going on for many years. In a Supreme Court ruling in 2004, a driver for Dynamex sued them because he argued he performed the tasks of an employee, but was registered as a contract worker.

At that time, the court established a person could only be classified as an independent contractor only if they were free from the direction and control of the company. They would also have to work outside of the company’s main business and work independently of the company, but still performing the same type of work.

The state of California took note of this ruling and decided it was a problem they needed to start addressing.

Costly Benefits for Companies

It is not only tech companies that are affected by the new California Law. There are a whole lot of other employees that work on contracts. These form an endless list that also includes construction workers, coders, film stars, gym instructors, and yoga teachers.

These contract workers miss out on a lot of benefits and protection and cannot formally organize unions. Additionally, they don’t have a minimum wage, unemployment and disability insurance, overtime, sick and family leave, worker’s compensation or unemployment and disability cover.

Barclays analysis has estimated these benefits could cost Uber as much as $500 million and year. It is estimated that the cost of these benefits for smaller companies adds up to 30% to their running expenses.

Opposition and Criticism of the Bill

It’s not just companies like Uber and Lyft who are opposed to the bill. It has been opposed by conservative representatives in the state by the California Chamber of Commerce and other business groups.

Since June 2019, Uber and Lyft tried to win over the state senate with the argument that drivers would lose their freedom and flexibility if they were classified as employees.

Meanwhile, labor advocates and many other interested parties are pleased with the law and consider it a landmark decision that will also win ground in other states.

The Bill Is a Source of Controversy

Uber and Lyft continue to pursue avenues to exempt themselves from the provisions of the law, affecting 500,000 of their drivers in California. Since the trucking industry managed to get an exemption from the law, Uber and Postmates also sued the state in December, stating the law is both unconstitutional and irrational.

Many groups of contractors are also worried that they are already restrained budget-wise. These include arts-focused organizations, theatre companies, and opera houses. Writers, interpreters, and translators have voiced the same concerns.

Vox Media chose to stop using the services of freelance writers and editors instead of reclassifying them as employees. The law states that any writer who writes more than 35 articles a year must be classified as employees.

It has been reported that Uber and other companies are looking for ways to bypass California’s new law. Reportedly, Uber is developing a new app called Project Luigi, which will be based on a franchising concept. On the other hand, DoorDash recently started offering its contract workers accident insurance in case of job-related injuries.

Is California Becoming an “Anti-Business” State?

Many consider California to be the state of technology, and for decades, many startups from the state have achieved economic success. The climate has changed over the last decade, and many entrepreneurs are frustrated by the way businesses are treated in the state.

Recently, Elon Musk, CEO of Tesla and SpaceX, announced that the company would be building the SpaceX rockets from Texas or Florida. He alluded to the state’s hostility toward business. Startup founders are reluctant to launch their startups in California, and many company expansions are being made in other states.

Tax, labor, and other regulations are among the reasons California is experiencing a steady loss of businesses, which is believed to be about 13,000 between 2008 to 2016, as reported by the Pacific Research Institute.

The shift of big companies from California will have a domino effect and will be adverse to other companies in the state.

About the Author


Headshot for author Adriaan Brits
As an analyst of global affairs, Adriaan has an MSC from Oxford, with diverse interests in the digital economy, entertainment, and business. He is a specialist trainer in Advanced Analytics & Media.

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