Following a recent trend of increased political scrutiny of technology companies, the California legislature passed a bill, Assembly Bill 5 (AB-5), focused on classifying gig-economy workers as employees.[1] Ride-share corporations, such as Uber and Lyft, have benefitted from classifying the majority of their workers as contractors because it reduces their labor costs. Specifically, classifying gig-economy workers as contractors eliminates the need for employers to provide them with minimum wage, overtime pay, health benefits or scheduled breaks.[2]
The bill’s design would drastically alter this cost structure. Legislators crafted the bill’s language to parallel the legal outcome in Dynamex Operations West, Inc. v. Superior Court of Los Angeles.[3] In Dynamex, the California Supreme Court established a three-prong test for determining whether a worker is an independent contractor or an employee.[4] To classify a worker as an independent contractor, an employer must demonstrate “that the person is free from the control and direction of the hiring entity in connection with the performance of the work, the person performs work that is outside the usual course of the hiring entity’s business, and the person is customarily engaged in an independently established trade, occupation, or business.”[5] Absent such a showing, the presumption is that a worker is an employee.[6]
AB-5 represents a break with politicians’ previous stances towards oversight of ride-share companies. Traditionally, state and municipal authorities allowed ride-share businesses to compete with local taxi businesses with relatively few hurdles.[7] Given the taxi industry’s myriad set of regulations and licensing requirements, ride-share businesses, with their flexible workforces and electronic infrastructure, were effectively granted a competitive advantage under law. However, recent headlines related to ride-sharing, such as workplace culture issues[8], impoverished cab drivers[9], and low paid ride-share contractors[10], have incentivized state authorities to implement stricter regulations. New York City, for example, implemented a congestion fee[11], capped the number of ride-share vehicles allowed to operate in the city[12], and enacted a minimum wage for ride-share drivers[13]. These policy developments track with broader trends concerning an increasing demand for oversight of tech companies in general.[14]
The overall regulatory landscape for technology companies, including ride-share corporations, has shifted significantly from the wide leeway regulators and local authorities previously permitted. Technology companies, like AirBNB and Uber, began competing with legacy industries with a competitive edge provided by the loose regulatory environment in which they operate
[15] However, even if voters bar the implementation of AB-5, increased regulatory and legislative scrutiny technology companies is likely to persist. The evolving tech regulatory landscape is not an aberration. The spotlight on tech companies’ practices partly reflects recent headline-grabbing issues, such as data privacy[16], but it also reflects that tech companies now occupy a more conventional space in the economy. Regulations are now tailored to reflect their practices[17], politicians propose industry-specific anti-trust measures[18], and deviations from normal business administration are no longer excused by shareholders[19]. Silicon Valley no longer has free rein to achieve scale.
Endnotes:
[1] Alejandro Lazo, California Enacts Law to Classify Some Gig Workers as Employees, Wall St. J. (Sept. 18, 2019), https://www.wsj.com/articles/california-enacts-law-to-classify-some-gig-workers-as-employees-11568831719.
[2] Jacob Passy, Uber doesn’t want its drivers to be employees-here’s why that matters, Marketwatch (April 15, 2019), https://www.marketwatch.com/story/uber-doesnt-want-its-drivers-to-be-employees-heres-why-that-matters-2017-11-13.
[3] A.B. 5, 2019 Assemb., Reg. Sess. (Cal. 2019).
[4] Dynamex Operations W. v. Super. Ct., 4 Cal.5th 903, 916-17 (2018).
[5] Id. at 917.
[6] Id. at 930.
[7] See generally Jordan M. Barry & Elizabeth Pollman, Regulatory Entrepreneurship, 90 S. Cal. L. Rev. 383 (2017).
[8] Mike Isaac, Inside Uber’s Aggressive Unrestrained Workplace Culture, N.Y. Times (Feb. 22, 2017), https://www.nytimes.com/2017/02/22/technology/uber-workplace-culture.html.
[9] Phil McCausland, Uber and Lyft drivers begin strike to protest low wages, job insecurity, NBC News (May 8, 2019), https://www.nbcnews.com/tech/tech-news/uber-lyft-drivers-plan-strike-protest-low-wages-job-insecurity-n1003066
[10] Brian M. Rosenthal, Facing Ruin, Taxi Drivers to Get $10 Million Break and Loan Safeguards, N.Y. Times (June 12, 2019), https://www.nytimes.com/2019/06/12/nyregion/nyc-taxi-medallions.html.
[11] Winnie Hu, Confused about Congestion Pricing? Here’s What We Know, N.Y. Times (April 24, 2019), https://www.nytimes.com/2019/04/24/nyregion/what-is-congestion-pricing.html.
[12] Katie Honan, New York City Extends Cap on Uber, Lyft Drivers, Wall St. J. (Aug. 7, 2019), https://www.wsj.com/articles/new-york-city-extends-cap-on-uber-lyft-drivers-11565215462.
[13] Katie Honan, Uber, Lyft Drivers Face Stiffer Regulations in New York City, Wall St. J. (June 12, 2019), https://www.wsj.com/articles/uber-lyft-drivers-face-stiffer-regulations-in-new-york-city-11560375449.
[14] Katie Mettler, A lawmaker wants to end ‘social media addiction’ by killing features that enable mindless scrolling, Wash. Post. (July 30, 2019), https://www.washingtonpost.com/technology/2019/07/30/lawmaker-wants-end-social-media-addiction-by-killing-features-that-enable-mindless-scrolling/.
[15] Alejandro Lazo & Sebastian Herrera, Uber Vows to Fight California Legislation on Gig Economy, Wall St. J. (Sept. 11, 2019), https://www.wsj.com/articles/california-governor-still-in-talks-with-uber-lyft-over-gig-workers-law-11568212014?mod=article_inline.
[16] Gabriel J.X. Dance et al., As Facebook Raised a Privacy Wall, It Carved an Opening For Tech Giants, N.Y. Times (Dec. 18, 2018), https://www.nytimes.com/2018/12/18/technology/facebook-privacy.html.
[17] See, e.g., A.B. 5, 2019 Assemb., Reg. Sess. (Cal. 2019).
[18] Matt Stevens, Elizabeth Warren on Breaking Up Big Tech, N.Y. Times (June 26, 2019), https://www.nytimes.com/2019/06/26/us/politics/elizabeth-warren-break-up-amazon-facebook.html.
[19] Schumpeter, WeWork shows why some venture capitalists are in a world of make-believe, The Economist, (Sep. 28, 2019), https://www.economist.com/business/2019/09/28/wework-shows-why-some-venture-capitalists-are-in-a-world-of-make-believe.
