Our new issue, “War Is a Racket,” is out now. Get a discounted $20 print subscription today!

Ending the “Independent Contractor” Misclassification Sham

Misclassifying workers as independent contractors hurts workers and enriches bosses, and is central to the business strategy of companies like Uber and Lyft. California state legislators passed AB 5 this week to stop this exploitative model. It’s a victory that must be defended from Uber and Lyft’s fightback.

A man enters an Uber drivers registration office on May 10, 2019 in Berlin, Germany. (Sean Gallup / Getty Images)

On Wednesday, the California Legislature passed Assembly Bill 5 (AB 5), which will protect gig workers and curb the horrible exploitation at the heart of Silicon Valley’s “innovation.” By correctly redefining rideshare drivers and others as employees, AB 5 expands the rights most workers take for granted to gig workers and others misclassified as “independent contractors.”

After a major push by California unions and progressive lawmakers, AB 5 is a huge victory for workers everywhere. Not only will this protect previously misclassified workers, but it will take misclassification out of the toolbox companies use to undermine all workers’ rights and unions in particular.

But the fight isn’t over. California Governor Gavin Newsom has pledged to sign the bill when it gets to his desk, and while it is planned to go into effect on January 1, 2020, Uber, Lyft, and others are already promising to bring litigation against the law that could delay its implementation indefinitely. And gig economy employers have also already pledged to spend nearly $100 million on a statewide ballot measure in 2020 to undo AB 5.

With their enormous wealth and influence, these companies — like all major companies — are able to bully the government and the voters just like they bully their employees. In order to consolidate the AB 5 victory and push for even more, unions have to continue fighting for the rights, not just of their members, but of all workers everywhere.

The Misclassification Scam

AB 5 closes a loophole through which over a million workers in California are misclassified as “independent contractors,” despite being more or less ordinary employees. Lyft, Uber, DoorDash, and other gig economy stars are getting the most attention, but the law will also affect workers in many more “traditional” industries, from trucking to nail salons to newspaper delivery to the adult entertainment industry.

Because it shifts operating costs and all sorts of risks normally borne by employers onto the workers, misclassification is a scam that’s horrible for workers and great for bosses.

There are workers who are reasonably defined as independent contractors, such as a self-employed plumber who owns their own tools, negotiates their own contracts, sets their own hours, and are in law as in practice their own boss. But Uber, Lyft, and other companies claim their workers are also independent contractors. This means that Uber and Lyft drivers are responsible for all the costs associated with their own vehicles, just as the plumber is for their operating costs.

Misclassification also offsets major market risk onto Uber and Lyft drivers by exempting them from wage and hour laws. Since, as independent contractors, the drivers are paid per ride instead of per hour, a slump in ride demand at a slow time of day or an increase in supply of rides will idle drivers for extended periods of time — time that the drivers aren’t compensated for that is free for Uber and Lyft. Similarly, drivers therefore aren’t covered by laws requiring paid break time, overtime laws, or paid time off. This has led to terrible hours and worse net wages for drivers.

Independent contractors are also not covered by occupational health and safety laws (Cal OSHA), and they’re unable to collect workers’ compensation if injured on the job as would a properly classified employee. The same goes for unemployment insurance.

And since independent contractors are considered legally to be essentially their own businesses, misclassified workers are not able to form unions to negotiate better pay, benefits, or protections. This would be treated by courts as illegal cartel price-fixing.

The gig economy is based on this scam: so-called flexibility for workers is actually just the freedom to fend for yourself while making your de facto employers obscenely rich. Meanwhile, companies that misclassify workers as independent contractors still get to maintain control over their work, over prices and compensation, and over the most important aspects of running a business for profit. Employers consider this control, often referred to as “the right to manage,” essential: if they can’t dictate the pace, price, and style of labor, they can’t extract maximum profitable labor from their cog-like employees.

The upshot: while Uber and Lyft drivers are making poverty wages, working inhuman hours and multiple jobs, and indebted for the cars they got to work this job, company executives are getting extremely rich (even as their companies lose money and cut jobs). In July, the Guardian reported that Uber cofounder Garrett Camp bought yet another gigantic mansion, this one a $72.5 million, Versaille-esque palace in Los Angeles. These Silicon Valley “innovators” at the helm of the gig economy are being richly rewarded for teaching the rest of the capitalist class how to undermine unions, skirt labor laws, erode public institutions like public transit, and bring back Charles Dickens–era working conditions to twenty-first-century industries.

AB 5 ends the practice of misclassification for gig workers and many other workers while setting an ambitious standard for the rest of the country to follow. (This standard is proposed at the federal level in Bernie Sanders’s Workplace Democracy Plan.) Effectively, AB 5 establishes a three-part test to determine if a worker is an employee or an independent contractor.

If the “hiring entity” can demonstrate that a worker is a) free from managerial control and direction, b) the worker performs work that is “outside the usual course of the hiring entity’s business,” and c) the person is “customarily engaged in an independently established trade, occupation, or business,” then the worker is legally still an independent contractor.

Since Uber and Lyft drivers — not to mention countless hyper-exploited and misclassified construction workers, delivery drivers, janitors, and more — are obviously carrying out work inside “the usual course of the hiring entity’s business,” they would now, thanks to AB 5’s “ABC test,” be considered employees and subject to all the regulations and protections provided to employees.

Inside the statehouse, labor-friendly Assemblymember Lorena Gonzalez of San Diego led the charge for AB 5. On Wednesday, her remarks on the legislature floor cut to the core of the issue: “Working three jobs is not flexibility, it is feudalism.”

Corporate Bullying

Despite assurances that the bill will become law within weeks, Uber and Lyft are not accepting defeat.

Immediately after the bill’s passage, Uber’s Chief Legal Officer (and Kamala Harris’s brother-in-law and erstwhile political collaborator) Tony West declared that while AB 5 is unfortunate, it doesn’t affect Uber’s drivers since the drivers are doing work “outside the usual course” of Uber’s business.

You read that correctly. Instead of being a firm providing a driving service via an app, Uber is merely “a technology platform for several different types of digital marketplaces.”

This is an old trick: the company avoids responsibility for the workforce by playing dumb legally, and declaring that they are merely the dispatcher, and the drivers are free to use the dispatch service or not. Of course, there would be no Uber drivers without the Uber app.

West doesn’t really believe this, but he is setting Uber up for what could be a protracted lawsuit against the state to delay application of AB 5’s new test to rideshare drivers. This is only one weapon in the massive arsenal of legal, political, and guerilla tactics available to American companies to delay, defang, and undermine labor and other regulations.

Uber, Lyft, and DoorDash have already committed $90 million for a 2020 ballot measure that would exempt their companies from AB 5 and keep their workers misclassified. While most Californians would likely agree with the spirit and letter of AB 5, these companies have good reason to think they can trick voters with expensive campaign ads and mailers devised by what Uber’s West promises will be “the best campaign team and best advisors we possibly can [hire] to run a successful ballot initiative.”

Such an approach worked for the real estate industry in defeating Proposition 10, which would have expanded rent control statewide, in 2018: despite rent control polling favorably, Prop 10 lost badly as 60 percent of voters sided with the companies who spent over $75 million to paint the measure as an attack on homeowners.

Companies like Uber and Lyft can also always threaten to pack up and move their headquarters to more business-friendly environments in Republican-controlled and virtually nonunion Southern states. This maneuver, called capital flight, has long been used by companies to punish governments for passing regulations that help workers and the environment but hurt shareholders’ bottom line. This is the same principle at work in outsourcing factory jobs to developing countries and even just nonunion American plants where workers are paid less and unable to organize to fight back.

If all else fails, Uber can continue to do what it does best: not giving a fuck. As New York Times technology reporter Mike Isaac reports in his book, Super Pumped: The Battle for Uber, Uber and its famously awful leadership have a long record of flouting local regulations, bribing public officials, and waging all-around guerilla warfare in order to establish and maintain Uber operations in resistant cities and countries.

For example, despite a 2014 nationwide ban on rideshare apps in Germany, Uber continued to operate and even publicly bragged that their ridership had been increasing since the ban. When the city of Portland, Oregon tried to ban Uber’s business, Uber figured out how to effectively hack into the smartphones of transportation authorities and police officers in order to hide Uber’s activity from the city. Presumably, this was very illegal, but Uber’s immense financial capacity to wage costly legal battles no doubt deters governments from enforcing their own laws.

With the passage of AB 5, we can expect legal bullying and illegal work-arounds to ramp up in California and in any other state that proposes to regulate the industry. In addition to good old-fashioned lobbying and astronomical campaign contributions to politicians of both parties, companies can often win using these tactics thanks to their vastly superior financial and political power as compared to workers, unions, and environmentalists.

Nonunion gig workers and major California unions have been fighting hard to end misclassification. In May, rideshare drivers carried out an international strike to protest horrible pay and conditions, and similar protests and journalistic exposés have raised the public’s awareness and ire against gig-sploitation for years. AB 5 is a massive victory for gig workers and unions. But until organized labor, now representing only 10 percent of workers, is strong enough to take this fight for workers’ rights to all sectors and all states, the companies’ antiworker fightback will continue.