Is the 'Gig' Up? What Dynamex Means for the Future of Contracting in California

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o you freelance in California? Have a side hustle? Drive trucks?  Work on political campaigns? Then you may want to pay attention to a major employment fight coming to a head in Sacramento.

The state Legislature is currently considering Assembly Bill 5, which would make it harder to classify workers as independent contractors, officially codifying a sweeping 2018 California Supreme Court decision. The so-called Dynamex bill, supported by organized labor and named for the court case, has made headlines for threatening on-demand business models made popular by the likes of Uber, DoorDash and Postmates.

Earlier this week, Lyft and Uber drivers caravaned across the state to show their support for the bill, rallying in front of Uber headquarters in San Francisco and calling for the right to unionize.

This Friday, the Senate Appropriations Committee is expected to decide whether the bill will advance further through the Legislature and face a vote on the Senate floor.

AB 5 could affect some 2 million workers in industries far from the so-called gig economy or the tech sector, from general contractors to strippers. The proposed legislation would rewrite the rules not just for workers, but also for employers, like media outlets (including KQED), winemakers, private investigators or music schools.

“Does AB 5 have very wide repercussions? Yes, that’s what makes the negotiations very complicated,” said labor rights attorney Bill Sokol, who teaches employment law at San Francisco State University and is not a part of the negotiations.

AB 5 has put Gov. Gavin Newsom, who wants to be viewed as an ally to both labor and tech, in an awkward position.

Opposing the bill are mainstream businesses that have banded together with some in the gig economy to wage an “I’m Independent” campaign against it.

Lobbying heavily in favor of the bill is organized labor, which wants to see gig economy workers get workplace protections, including the right to collective bargaining.

California has long led the nation on employment practices, and the Dynamex bill may be just the beginning as policymakers wrestle with updating labor codes for a changing workplace.

“Everything is up for grabs,” Sokol said. “There’s no way to predict who’s going to end up with what. But labor recognizes that the American workplace they have traditionally organized — those worker relationships — have changed, and the laws have not kept up with them.”

What was the Dynamex decision all about?

The state Supreme Court decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles dealt with a same-day courier service that, to save money, had converted all its employees into independent contractors. A former employee claimed the shift was a state Labor Code violation, and the litigation that ensued ended up reinterpreting how workers are classified. The ruling established a three-part test for certifying independent contractors.

Even though the Dynamex decision is already law, labor representatives say many companies have been flouting it. AB 5 would ensure that workers would not have to file suit on a case-by-case basis to seek enforcement.

“There’s a whole bunch of things that they’re currently being cheated out of, frankly,” said Steve Smith with the Labor Federation. “With respect to Uber and Lyft, it’s the exploitation they subject their workers to on a daily basis. Many of these workers are not receiving minimum wage. They are misclassified as contractors when they actually should be considered employees, meaning there’s a whole host of benefits they’re not getting that they should get like everyone else.”

In steering more workers to employee status, the bill would force companies to offer basic worker protections that contractors don’t currently receive, such as guaranteed minimum wage, overtime pay, contributions to Social Security and Medicare, and unemployment and disability insurance. Those workers would also be eligible for workers’ compensation, sick and family leave and would be protected from discrimination at work, none of which are currently afforded to contractors.

“It’s a really important bill. States all over the country are watching to see what happens,” said Veena Dubal, a UC Hastings employment law professor, who spent several years representing San Francisco taxi drivers. “It’s pretty clear that most workers in the gig economy need labor and employment law protections under California law. … It’s vital that we have legal analysis that is clear both to businesses and workers so there’s less ambiguity.”

The state estimates it loses about $7 billion a year in payroll tax revenue due to worker misclassification — money that could be supporting schools, roads and other public services. And by avoiding unemployment insurance taxes and workers’ compensation premiums, businesses shift the burden to the state when workers get laid off, sick or injured on the job.

“These billion dollar companies can complain, but we have to ask ourselves as taxpayers: Should we subsidize their business by subsidizing their workers?” said Democratic Assemblywoman Lorena Gonzalez, a former labor organizer from San Diego who introduced the bill.

Gonzalez dismisses the idea, often touted by opponents, that Uber and Lyft will flee California if forced to reclassify their workers as employees. More likely, she predicts, Uber and Lyft will make the changes required by law because there’s a massive market for transporting individuals and goods in California, the fifth-largest economy in the world. And if they can’t swing it, then someone else will, she has said.

Where do labor and business groups stand?

Labor groups, led by the 2 million-member California Labor Federation, have united behind legislation. Their contention is that the gig economy has opened the door to mass exploitation of low-wage workers, a trend that is worsening income inequality.

But business advocates warn that the change would dramatically increase labor costs in California and have dire consequences for the state’s economy.

“We have a completely different economy,” said Jennifer Barrera, executive vice president of the California Chamber of Commerce. “We have a huge group of individuals who really value their flexibility and control over their own schedule and I don’t think it has to be one or the other.”

As for Uber and Lyft, the rideshare companies have sought compromise and held backchannel negotiations with the Teamsters and Service Employees International Union.

Their hope is to carve out a way to allow employers to grant some benefits without having to categorize workers as full employees.

In an open letter, Uber Chief Executive Dara Khosrowshahi and Lyft co-founders Logan Green and John Zimmer proposed maintaining their drivers’ freelance status but granting access to some employee benefits such as paid time off and retirement accounts. The executives, whose combined worth is over $1 billion, have also offered to form a new driver association to advocate for drivers’ interests.

“We are public companies that tens of millions of people rely on for mobility and work,” they wrote. “If there ever was a time for new policies, it’s now.”

On the other side are drivers like 62-year-old Ann Glatt, who joined the Gig Workers Rising movement after noticing her share of fares declining over time with Lyft. She said she was lucky to make $700 a week and would like to see changes to how drivers like herself are categorized.

“Teachers are in unions. We’re not able to unionize  because we’re independent contractors,” Glatt said.

She added that how companies describe their drivers can be misleading.

“Uber and Lyft are not transportation companies — they are platforms,” she said. “So that makes us customers and the passengers are the end user. But really it kinda just means Uber and Lyft are not responsible for basic labor standards for people.”

In a follow-up interview, Glatt said she stopped driving for Lyft because she wasn’t able to make ends meet.

What about more traditional industries?

The impact of the Dynamex court ruling has been felt far more broadly than many Californians had expected, and AB 5 ‘s impact could be similarly widespread.

Gonzalez said she’s heard from newspaper publishers who want to keep using freelance journalists and beauty salons that rely on nail technicians. Her bill has even rattled folks in the world of politics, because it would reclassify campaign workers as employees instead of contractors.

Weighing in against the new rules are also representatives of the construction and trucking industries.

Peter Tateishi, CEO of the Associated General Contractors of California, which represents construction firms, said the bill would disadvantage small businesses, including many women-owned and minority-owned shops, because the builders that have long hired them as subcontractors won’t be able to do so anymore.

The trucking industry has challenged the Dynamex decision in federal court, arguing that federal laws governing motor carriers preempt the state test.

Chris Shimoda, vice president of government affairs for the California Trucking Association, says trucking has long been a career option for those without advanced degrees. About 80% of drivers in the industry have a high school education or less, he said.

But under Dynamex’s rules, truck drivers who own their own $150,000 Class 8 heavy duty trucks may start finding it difficult to get work.

“We all agree there should be a pathway, especially for the blue-collar working class to rise up the economic ladder,” Shimoda said. “If there are specific things that have been abused, then what are those and how do we reconcile that through this bill?”

Will some industries be exempt?

Lawmakers and lobbyists are continuing to negotiate the details of the Dynamex bill. So far, Gonzalez has agreed to exempt doctors, insurance and real estate agents, hair stylists and barbers who hold a booth rental permit, dentists, architects, engineers and accountants out of the law.

But business interests are pressing for more exemptions. Barrera of CalChamber said the organization would also like to carve out licensed occupations like court reporters and family therapists.

While Gonzalez said she intends to sort through more requests, the exemptions will need to stop at some point.

“I have a driver’s license,” she said. “That doesn’t make me a business owner.”

KQED’s Matthew Green contributed reporting to this article.

CALmatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics.