New California law says Uber drivers are employees, Uber says they’re contractors

A new law looks set to be passed in California that could set a much wider precedent regarding the employment status of participants in the gig economy.

One of the most disruptive trends brought about by the mobile internet is the gig economy, in which people are able to get casual, piecemeal work simply by registering through a mobile app with a company that matches people who need a service with people willing to supply it. In many ways it has revolutionised the labour market, but there is also considerable disquiet about the lack of employment rights afforded to these ad hoc workers.

A new law in California seems designed to address this disquiet. It’s called Assembly Bill 5, or AB5 for short, and it recently overcame its main legislative hurdle to becoming law. AB5 seeks to reclassify a lot of gig economy workers from contractors to employees. Contractors get hardly any employment rights, such as sick pay, while employees are legally entitled to a bunch of them.

As with most labour relations issues there are two sides to this, each with their own merits. On one hand it does seem unfair for gig economy workers, such as Uber drivers, to get no employment rights despite often working full-time at the job in question. On the other hand they are free to do other work at the same time, a key feature of contracting.

Lastly there’s the fact that the primary differentiator for gig economy services over legacy ones is price. It’s precisely because the internet company facilitating this labour exchange doesn’t have the overheads of a traditional company, which includes things like employee benefits, that the service is so much cheaper.

Even with these advantages Uber is losing a billion bucks a quarter, so it’s highly debatable whether or not it would even be a viable business if it was forced to reclassify its drivers as employees. As you would expect it has been lobbying extensively against this law and doesn’t intend to give up just because it’s on the verge of losing that specific fight.

In his recent update on the AB5 situation Uber Chief Legal Office Tony West, challenged the reclassification of Uber drivers, noting they’re free to work for competitors too and asserting that ‘drivers’ work is outside the usual course of Uber’s business, which is serving as a technology platform for several different types of digital marketplaces.’

This kind of law-making seems like an existential threat to the gig economy which, while arguably exploitative towards its employees (sorry, contractors), also offers flexible work to people who might not otherwise be able to earn at all and presents consumers with great value for money. If the precedent set by California spreads, the digital economy could be set for its biggest shake-up to date.