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Yes – California’s Assembly Bill 5 Has a Silver Lining

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Yes – California’s Assembly Bill 5 Has a Silver Lining

California’s Assembly Bill 5, which went into effect early in 2020, has been largely panned by companies that make extensive use of independent contractors. The law is strict enough that it threatens to put some independent contractors out of work should the Golden State prevail in court. However, even Assembly Bill 5 has a silver lining.

What is that silver lining? It is forcing companies that were borderline in their compliance with classification laws to go one way or the other. Uber is a good example. According to Bloomberg, Uber has already made changes designed to give its drivers more autonomy, thus proving they truly are independent contractors rather than employees.

Government regulations determining how organizations do business often push the boundaries of overreach. In many cases, they exceed the boundaries. Yet if a regulation forces a company to clean up its act, at least some good can come of it. That seems to be the case with Assembly Bill 5.

Contractors with No Control

Dallas-based BenefitMall, a company that specializes in benefits administration, explains that worker classification is mainly the domain of the IRS. Workers have to meet certain requirements in order to be classified as independent contractors. It is believed that California lawmakers embraced Assembly Bill 5 mainly because they believed Uber and Lyft were not following federal mandates.

Critics allege that drivers for both companies have very little control over what they do. They are restricted to using their respective apps to get customers. The two companies establish rates and fares. There are other restrictions as well. About the only freedom drivers have is deciding when they want to work. Everything else is left up to Uber and Lyft.

IRS regulations indicate that employees cannot be classified as independent contractors if their work is largely controlled by their employers. If workers have no say about how they do their jobs, they are probably not independent contractors. If they are prevented from providing the same service to multiple employers, they probably aren’t independent contractors. The list goes on and on.

Making Necessary Changes

Whether you side with the two ride-sharing companies or their critics, it’s clear that Assembly Bill 5 gives them the choice of either changing their business models or reclassifying drivers and paying them appropriate wages along with company benefits.

As previously mentioned, Uber has already made some changes. They now allow their California drivers to set their own rates. They also allow drivers to see both pickup and drop-off destinations before accepting a job. Though that is probably not nearly enough to satisfy California officials, it is a step in the right direction.

Perhaps Assembly Bill 5 will have no effect other than forcing borderline companies to make changes. That wouldn’t necessarily be a bad thing as long as workers are not adversely affected. But therein lies the danger. There are certain professions that have existed under the umbrella of contract work for generations. Some of them are in danger of extinction in the Golden State.

A Better Definition Would Help

Hopefully, the current litigation involving Uber and Lyft will catch the attention of federal bureaucrats and lead to a better definition from the IRS as to what constitutes an independent contractor. A better definition sure would help companies with independent contractors on the payroll.

In the meantime, let us hope those affected by California’s Assembly Bill 5 can find a way to make it work. It would be unfortunate to see companies go under or workers lose their livelihoods because of a law that seems to target just one particular industry.