The US state of California rang in the new year with a labor law that could potentially force companies to classify thousands of independent contractors—specifically, gig workers such as those employed by tech companies—as actual employees.
In response, ride-hailing giant Uber and delivery services company Postmate sued on Monday, December 30, to block the law, alleging that it unfairly targets and harms network companies and app-based independent service providers like themselves.
The law, called simply Assembly Bill 5 or AB5, went into effect on Wednesday, January 1, and states that workers can only be considered independent contractors if they are free of the company’s control, the work they are doing is outside the usual course of a company’s business, and they have an independent business in the industry. These new requirements mean that over a million contract workers in California would be reclassified as full-time employees and receive the commensurate employee benefits and rights, including minimum wage, medical care, overtime pay, and disability compensation, among others. On the other hand, labor costs for the companies employing these workers would rise significantly and likely hit their bottom lines hard.
If the Uber and Postmate lawsuit does not succeed, Uber, its competitor Lyft, and food delivery company DoorDash have each committed $30 Mn to a campaign to get voters to overturn the law in November 2020.
It’s worth noting that while the gig economy giants stand to lose the most, the gig workers themselves are also losing out in the short term. After the law’s passage last September, reports came out that publications were laying off freelance writers, with digital sports media company SB Nation dropping the contracts of some 200 California-based freelancers. The bulk of the legal challenges and pushback have come from industry associations, as well: the California Trucking Association, the American Society of Journalists and Authors, and the National Press Photographers Association have already filed suit against the law, and music industry associations have also expressed dissatisfaction.