Uber and Lyft have changed the face of traditional transportation systems, making it easier for people to hop a ride almost anywhere and, in some cases, live without owning a car. The growth of Lyft and Uber has coincided with the rise of the gig economy, which focuses on hiring independent contractors and freelancers instead of full-time employees. Drivers work when they want, getting paid for each ride and covering the cost of their car expenses and taxes. This gig economy set-up has allowed many people to earn income and enjoy the flexibility that comes with being a independent contractor. However, a recent California bill will soon go into effect that will recategorize many drivers as employees, beginning in January 1, 2020.

What is AB5?

California Assembly Bill 5 (AB5), also known as the gig-worker rule, will require Uber, Lyft, and other app-based companies to pay all of their employees minimum wage and provide benefits like health insurance and sick pay to the workers in California. Additionally, as employees instead of independent contractors, drivers will be legally able to unionize and negotiate contracts. Lyft and Uber, along with other companies and individual workers, argue that the new law will take away the flexibility that so many drivers value, such as setting their own hours, choosing how many rides to do, and, essentially, being their own boss. The companies have since filed the Protect App-Based Drivers Services Act to the California Attorney General’s Office in the hope that drivers could remain classified as independent contractors after AB5 goes into effect. Drivers are divided on the ballot.

The AB5 will require companies to use a legal standard referred to as the ABC test in order to determine employment status. In order for a company to demonstrate that a worker is an independent contractor, they must provide documentation that the following three categories are satisfied: A.) The worker is free from the control and direction in the performance of services B.) The worker is performing work outside of the hiring entity’s usual course or type of business. C.) The worker has their own independent business or trade beyond the job they were hired for. The passage of AB5 could influence other states to follow a similar trend.

How will the law impact the gig economy?

The law will definitely impact other companies and workers as well. Vox Media announced that they will be ending contracts with hundreds of freelance writers as the company prepares for the implementation of the new law. With gig-economy jobs becoming more and more widespread, AB5 and the possibility of similar laws going into place may create a new shift in today’s workforce. It’s important to stay informed of the laws that may be going into effect and understand how they are going to impact your company. 

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