Seyfarth Synopsis: The controversy surrounding AB 5 unveiled a clear need for a new avenue of classifying so-called gig workers to combine the certainty of employee designations with the flexibility of gig jobs. What are the promises of and prospects for a hybrid classification that would provide workers with some employee benefits while also providing workers and companies some of the freedom and efficiencies observed in a gig economy? Can we see what the future will hold? This post explores some possibilities.
In the exceptionally popular Game of Thrones series, the third eye of the indispensable Three-Eyed Raven symbolizes perception beyond ordinary sight, or a third way. This need for future thinking and a third way has become increasingly more important in California when it comes to worker classifications.
By now, everyone knows all about AB 5: its legacy, its controversy, the numerous legislative exceptions it has inspired, the myriad court battles it has provoked, and the responsive initiative that has qualified for the November 2020 ballot. Indeed, not only have we written extensively on the measure, we also have our own tag dedicated exclusively to the issue. So what is the future of the gig economy in California? Is there a workable “third” way of classifying workers in the gig sector. While answering that question requires prescience beyond the mortal ken, we will put on our best “Three-Eyed Raven” hat to foresee some possible roads the future of the gig economy may take.
“I Have Been Many Things. Now, I Am What You See”—Piecemeal Legislative Changes
Many California gig businesses maintain they cannot survive if they must classify their drivers as employees under AB 5. The measure’s author, Lorena Gonzalez, insists the bill is not so bad for business. But if so why, then, are there a variety of stand-alone bills that would provide exemptions for at least 16 different industries?
Is a scattershot approach to legislation really the best solution? And must we choose between (a) dismantling the ABC test and AB 5 and (b) leaving AB 5 in place to require that all gig sector employees be classified as employees? Is there instead a third way—a hybrid classification that would provide the flexibility of the gig economy while ensuring that workers reap at least some benefits of employee status? This elusive third way has been discussed for years, but the controversies over AB 5 controversy may finally force the issue.
Meanwhile, the pandemic and the government’s response thereto—through the CARES Act and otherwise—may have played its own part in forcing the issue. The pandemic left gig workers particularly vulnerable, as independent contractors are normally ineligible for unemployment compensation. But the CARES Act gave them eligibility, limited by prior earnings.
“It Is Beautiful Beneath The Sea. But If You Stay Too Long, You’ll Drown”—Making A Dramatic Change
Drastic legislative changes to the employment marketplace have precedents. Industrial-era jobs were transformed during the Industrial Revolution when labor unions were empowered to negotiate for higher wages, shorter hours, and safer working conditions. Many believed these changes were too radical, but we’ve become accustomed to them. We may have seen a modern analog when the House passed the historic, $3 Trillion HEROES Act, which would make fundamental changes in the workplace.
“Look For Me…Beneath The Tree…North!”—Elusive “Third Way” Of Classifying Workers
So what would a “third classification” look like? One legislative option is SB 1039, authored by Senator Cathleen Galgiani. SB 1039 would “develop a modern policy framework that facilitates independent work for those who voluntarily choose it by creating a third classification of workers with basic rights and protections relative to work opportunities.” The stated rationale is that AB 5 has made it “increasingly obvious that a binary system for classifying workers as either independent contractors or employees is outdated and inapposite of the current reality of the labor market and work opportunities presented in the gig economy and the desire of workers seeking flexible working conditions.”
Despite SB 1039’s stated intentions, its substance has yet to take shape. Those crafting the measure might look to New York’s Freelance Isn’t Free Act, which took effect in May 2017. The Act requires an employment-type contract whenever a freelancer completes $800 worth of work, and provides freelancers with additional monetary remedies if a hiring party tries to avoid paying. The Act establishes a complaint procedure to be administered by the City and provides for a private right of action.
The Act does not, however, provide the employee benefits AB 5 does—such as a minimum wage, workers’ compensation, unemployment insurance, paid sick leave, and paid family leave. To address these concerns, SB 1039 could be amended to include such protections without going so far as pulling gig sector workers out of the IC designation and imposing on companies all the cascading Labor Code burdens that come along with an “employee” designation. For example, an amendment could tie benefits to hours worked, or to certain duties performed, or some combination of both.
“You Will Never Walk Again, But You Will Fly”—The Future Of Work
SB 1039 also refers to Governor Newsom’s Future of Work Commission, established via executive order. Although the pandemic has paused the Commission’s work, the Commission previously explored models to improve access to benefits tied to employment (e.g., paid time off, healthcare, training) for workers who have been excluded from certain benefits. Subjects that the Commission has investigated include portable benefits models and small groups that contribute to a centralized organization that provides access to benefits. Indeed, portable health benefits is one potential solution the Tech sector has suggested to ensure that gig workers have access to medical benefits. Once the Commission returns to work, its progress will be a good barometer for the future of the gig economy in California.
Undoubtedly, gig companies provide services that many consumers want, and many Californians want the flexibility these gig jobs offered prior to enactment of AB 5. In light of these realities, we hope to see the California Legislature find that sweet middle ground that promises some of the benefits of an employee classification while allowing for the flexibility typically associated with gig professions.
“The Time Has Come…Leave Me!”—Workplace Solutions
So what should employers consider, given the uncertain future of gig workers? Employers that use independent contractors must be sufficiently agile to adapt to a new classification—one that could cause additional administrative duties, but one that would also save resources and create efficiencies. With change likely to come, employers should be reviewing their practices regarding independent contractors to ensure they are in line with AB 5 now, and to prepare for legislative change. Just as the Three-Eyed Raven must move from mortal body to mortal body, employers must also be prepared to adapt to a potential third way of classifying workers.
Edited by Michael Wahlander