California Bill to Crack Down on Gig Economy

Rideshare drivers in Southern California protesting low pay and lack of benefits.

Yesterday, the California Assembly passed AB 5, a bill which reclassifies most independent contractors as employees, which would entitle them to minimum wage, benefits, and labor protections, as well as requiring their employers to pay payroll taxes. Specifically, it requires that, in order to be classified as a contractor, a worker must be able to determine how they provide their services, that their work is not part of the business’ primary commercial activity, and has an independent business in the field. If this bill passes the Senate and is signed into law, which is expected to happen, it would have huge ramifications for new mobility companies and others whose business models rely on under-compensated gig work.

In their IPO, Uber identified classification of drivers as employees as a serious threat to their business. While Uber maintains that is drivers are contractors because they own their vehicles and set their own hours; however, under this bill, it is unlikely to meet the remaining two requirements, as giving rides is Uber’s main business and drivers are not presumably operating as a business.  The change in the law would presumably raise their costs and require a change of model.

Indeed, the entire model of gig-based businesses is premised on being able to avoid paying salaries, benefits, and payroll taxes for their workers. Having to do so will likely to lead to higher prices and many companies contracting becoming entirely unviable, especially considering that many are barely profitable, if at all, thereby undoing much of the change that has been seen in transportation in recent years. While this could have negative impacts on mobility, this will presumably be balanced by substantial positive impacts on equity and economic well-being.

Furthermore, not all new mobility is likely to be affected equally. Micromobility companies, which rely on gig workers for charging and distribution of scooters and e-bikes, are likely to be impacted than rideshare companies, which require a worker for every trip made. Additionally, those that use paid employees, such as municipal bike share systems, would be entirely unaffected. Los Angeles’ Metro Bike Share recently adopted a dock-optional smart bike system, in which riders can leave a bike anywhere but receive a discount for leaving it at a dock where it can charge. Companies wishing to remain fully dockless may be able to adopt a similar strategy by providing discounts or credit to riders who charge scooters or leave them in desirable locations, though it is unclear if this would be legal under the new law. Regardless, passage of the bill will undoubtedly have a massive impact on the transportation landscape in California cities