Unemployment approaching 20 percent. Thousands of businesses shuttered. A $54 billion state budget deficit. Deaths from COVID-19 reaching 2,500 and climbing. California’s new priorities are obvious. But by punishing some of the world’s most innovative businesses, California took a big step backwards from reigniting the economy.
Last week, California’s attorney general filed lawsuits against Uber and Lyft alleging that the companies are violating state law by classifying rideshare drivers as independent contractors rather than employees. The lawsuit was joined by the cities of Los Angeles, San Diego, and San Francisco. But a handful of Republican lawmakers are working to reverse this law.
Known as AB 5, this law is one of the most controversial bills passed in California of late. The law puts the burden of proof on businesses to establish their workers as independent contractors, requiring that these workers satisfy three requirements:
- The worker is free to perform services without the control or direction of the company.
- The worker must perform different tasks than the hiring entity’s main business.
- The worker is independently established in the trade that they are providing for the hiring entity.
Taken together, these three rules make it extremely difficult to qualify as an independent contractor unless one works in an occupation that has received an exemption from AB 5.
This one law highlights much of what is wrong with California governance and policy making, which invariably imposes costs on most Californians, benefits very few, and grossly and arrogantly suppresses economic and personal freedom with arguments that defy logic.
To begin with, the lawsuit could not have come at a worse time, as the state continues to reel from the coronavirus. The law is incredibly unpopular with independent contractors who strongly value their independence and the ability to set their own schedules.
California representative Kevin Kiley, who has been working to repeal and replace AB 5 with new legislation, maintains a Twitter account about AB 5. You can find dozens of tweets from those who previously made a living as independent contractors but are now struggling to find work, such as a 55-year-old videographer and film editor, who had worked as an independent contractor before AB 5. He stated, “AB 5 has decimated my income. I own my own successful business. Companies are shunning older workers. Who will hire me (as an employee)?”
Despite enormous backlash, Representative Lorena Gonzalez, the author of AB 5, has refused to budge, other than indicating she is willing to consider more occupational exemptions. At the same time, Gonzalez claims that AB 5 is necessary because workers need the protections of paid sick leave and access to disability and workman’s comp insurance.
But if Gonzalez believes that these are important, then why are several occupations exempt? Shouldn’t all workers be treated equally? Why are architects exempt but not landscape architects? Why are tow truck drivers who are affiliated with AAA exempt but not other tow truck drivers? Exempt and nonexempt categories seem to have little to do with worker protection and more with who has lobbying power in Sacramento.
AB 5 is legislation that is about as contrary to the country’s principles as you can find. It is a handful of politicians imposing their own views and interests on how others should run their lives. It reduces the opportunity to earn a living and in some cases throws people out of work. Along with 150 other PhD economists and political scientists, I have signed a letter requesting that AB 5 be suspended during the public health crisis that we are facing.
This week, Republican lawmakers will present three bills in the state Senate Labor Committee. The bills are intended to reverse the damage being done by AB 5. One bill would repeal and replace AB 5 with new law, another would repeal AB 5 for two years, and the third would prevent the imposition of AB 5 retroactively.
Because of the Democratic supermajority in both houses, the Republican party has had very little influence on policy. But this trifecta of bills is very useful, as it provides the Democrat-controlled State Senate with a smorgasbord of opportunities to revise or reverse this destructive law.
SB 806, authored by Republican senate leader Shannon Grove, is intended to allow any industry, profession, or business that had legally hired independent contractors before AB 5 to continue to do so. The bill includes an urgency clause, which means it would become law immediately upon signing by the governor. Grove states, “Senate Bill 806 will protect the livelihoods of California freelancers whose jobs have been harmed by this anti-worker law. . . . With 4.5 million Californians out of work, I join the countless list of freelancers, economists, and others calling for the suspension of this anti-worker law because it is flawed, needs to be repealed immediately, and the commonsense answer is SB 806.”
SB 990, authored by Republican senator Josh Moorlach, would repeal A B5 for two years to allow for the California economy to recover from the pandemic and the enormous $54 billion state budget deficit. It would also grant time for legislators to create compromise legislation that would soberly confront the enormous economic challenges California will face in the coming years.
Moorlach states, “Californians should be free from the chains of this AB 5 nonsense. When the legislature enacted AB 5 last year, they effectively put tens of thousands of Californians out of work by denying them the opportunity to work as individual business owners and independent contractors, even though this has been a customary practice condoned by the IRS for decades. Rarely has a democratically elected government enacted such an extreme and repressive law as AB 5.”
If AB 5 continues, SB 997, authored by Republican senator Andreas Borgeas, would prevent the retroactive application of the law. This is a very important bill, because some state lawmakers will be trying to raise revenue given the state’s fiscal position, and fining businesses ex-post will depress job creation even further. Borgeas states, “Workplace flexibility is more important than ever. AB 5 prohibits freelancers and independent contractors from providing important services. If we are to ensure California’s economy gets back on track we must provide Californians with every opportunity to support their families.”
Senators Grove, Moorlach, and Borgeas are right. This is an awful law that takes the opportunity to work as they prefer away from many Californians, and many of the work relationships that are affected may disappear because of AB 5.
This is not a partisan issue. Many of the economists who oppose AB 5 are lifelong Democrats. AB 5 is a destructive law that penalizes many Californians. AB 5 must be repealed and replaced if California is to recover from the pandemic and pursue a vibrant economic future.
