Assembly Bill 5 and How it Impacts Tech Companies Thriving off the Gig Economy | Colony West
June 18, 2024

Assembly Bill 5 and How it Impacts Tech Companies Thriving off the Gig Economy

Human Resources/By Colony West/0 comments

The ideas around freelance work aren’t something new but the term ‘gig economy’ is becoming more and more mainstream. Whether it’s the state of the economic climate or the fact that millennials place higher value on flexible work, the term gig economy has been widely accepted by startups across the United States. In this blog, we’ll discuss the following items:


  • What is the gig economy?
  • How does California Assembly Bill 5 affect the gig economy?
  • What are the implications for ride-sharing companies like Uber?


What is the gig economy?

A gig economy refers to a labor market where short-term contracts and freelance work is commonplace rather than permanent jobs. This ecosystem of labor includes a variety of different workers who oftentimes determine their own schedules and hours worked, under the umbrella of being ‘non-employees.’ It has also been referred to as a freelancer economy, agile workforce, sharing economy and/or independent workforce.


How does California Assembly Bill 5 affect the gig economy?

Last week, California Governor Gavin Newsom signed California Assembly Bill 5, limiting companies from classifying workers as independent contractors rather than employees. Originally introduced by California assemblywoman Lorena Gonzalez, the bill addresses concerns over employee misclassification because of the benefits that independent contractors and freelancers miss out on such as labor protections, minimum wage laws, sick leave and compensation benefits. The law, which will take effect on January 1st, 2020, lays out a stricter set of requirements classified in a California Supreme Court decision regarding the classification of employees.


What are the implications for ride-sharing companies like Uber?

Ride-sharing apps like Uber and Lyft have enjoyed the “benefits” of non-employees since their inception. It is no surprise that these gig economy companies like Uber, Lyft and DoorDash, amongst others, have pledged $30 million each on a 2020 ballot initiative to reverse the bill.

Despite the new bill, Uber maintains that they will not reclassify drivers as employees because it doesn’t believe the bill requires them to. Citing the “ABC Test” for determining whether someone is a contractor or employee, Uber argues that their drivers are not core to the business. Tony West, Chief Legal Counsel at Uber states, “Under that three-part test, arguably the highest bar is that a company must prove that contractors are doing work ‘outside the usual course’ of its business. Several previous rulings have found that drivers’ work is outside the usual course of Uber’s business, which is serving as a technology platform for several different types of digital marketplaces.”

While Uber believes they’ve found some loopholes in the wording of the bill, the company undoubtedly will be exposed to lawsuits from “non-employees” and state prosecutors. If the company is forced to reclassify its drivers, the whole landscape of the driver’s hours would change. No longer would drivers have the flexibility to sign in and out of the app at anytime and would be put into a shift-based schedule. Time will tell to see how this bill impacts the ride-sharing app and its users.


Future Implications

With California taking the lead, it will be interesting to see the domino effect of AB5. Other states will be watching the effects of this closely to see how best to tackle the gig economy. At Colony West, we too have been keeping a close eye on the ramifications of AB5. If you’re business operate under the gig economy, reach out to us today to discuss how best you can stay in compliance. We are here to help!