When there is only the side hustle
Free-market Republicans, independent contractors and desperate freelancers all have something to say about California’s new gig economy law
Rebecca Kincl held her infant son’s hand as he walked slowly in circles around her, avoiding restlessness. For about an hour they stood in front of the state Capitol’s west steps, the site of countless demonstrations each year. Kincl, a part-time music teacher, was there on Jan. 28 to protest a new California law that she and other independent contractors worry could cost them their next paycheck.
“I have friends who have already lost work,” she said. “I don’t know how it’s going to affect me.”
Kincl was referring to Assembly Bill 5, also known as the “gig economy law.” Jump-started by a 2018 state Supreme Court ruling, AB 5 took effect Jan. 1 and restricts companies’ ability to hire someone as an independent contractor instead of as an employee with all the formal benefits and protections that designation bestows.
AB 5’s backers say the law will prevent large corporations from exploiting vulnerable workers, especially low-wage earners and immigrant laborers.
Critics say those big corporations will sooner cut ties with independent contractors rather than hire them as employees, thus threatening the livelihoods of more than a million workers cobbling together a living one client or gig at a time.
Simmering under this debate is a stubborn economic reality that, more than a decade after the Great Recession supposedly ended, the American Dream feels out of reach for many Californians.
Which begs the question: If the economy is so healthy, why are California’s approximately 2 million independent contractors hustling so hard in the first place?
How’s the economy—really?
While state unemployment is at a record low, wages have been stagnant for decades, and the gap between the country’s richest and poorest continues to widen. Workers’ bargaining power has suffered as union membership has dropped over the last half century, and the prevalence of people in freelance and nontraditional work arrangements means that fewer benefit from the gains that unions achieved.
These factors frame the AB 5 fight, says Ken Jacobs, chair of the UC Berkeley Center for Labor Research and Education.
“There is an important element here about creating the possibility for a worker voice in the decisions that affect their lives,” he said. “The question is: Are we as a society going to accept the degradation of employment standards?”
There’s evidence that California’s working class already experiences that degradation, in spite of the record-low state jobless rate of 3.9%. Between 2018 and 2019, the state’s homelessness rate jumped by 16.4%, or about 21,300 people. According to the U.S. Department of Housing and Urban Development, that spike is higher than the total increase of every other state combined.
And while the U.S. poverty rate declined for the fourth consecutive year in 2018, income inequality continues to grow in one of the county’s least affordable states. According to the Public Policy Institute of California, the richest families have 12.3 times the incomes of earners in the bottom 10th percentile. And in the past 40 years, income has increased 60% for the 90th percentile of families, while those in the middle and lowest percentiles have seen growth between 20% and 24%.
The purchasing power for those making the median wage hasn’t really budged in four decades, according to the Pew Research Center. The Pew report found that wage gains have mostly benefited those who already make the most.
“The median wages for workers are barely over what they were in the late 1970s,” Jacobs said.
He believes AB 5 is one way to help address inequality, by expanding benefits and legal protections to a greater share of the labor force.
But some workers targeted by the new law see it as stifling their ingenuity and flexibility.
“As independent contractors we are not exploited,” Erica Sandberg, a San Francisco-based freelance writer who specializes in personal finance, told a crowd of approximately 300 people at last week’s rally. “Quite the opposite, we are empowered.”
AB 5’s supporters would say Sandberg is the exception to the law.
Strange bedfellows vs. AB 5
The Rally to Repeal AB 5 came together under the direction of two free-market types—Republican Assembly members Kevin Kiley of Roseville and Melissa Melendez of Riverside County.
Kiley, who is trying to repeal AB 5 with his AB 1928, compiled 200 anecdotes for a booklet called “AB 5 Stories” to illustrate the law’s toll on jobs. New York-based Vox Media, which stopped working with its 200 freelancers after Gov. Gavin Newsom signed AB 5 into law last fall, aided the lawmakers’ case that the law would be a job-killer.
Competing data says otherwise.
Last year, researchers with UC Berkeley’s Center for Labor Research and Education estimated that, among Californians who earn their primary income as independent contractors, 9% would be exempt from AB 5. This group includes higher-earning professionals such as real estate agents, lawyers and doctors.
The law would apply to 64% of independent contractors, largely representing the lower-income workers that the bill aims to protect, including truckers, teachers, translators and freelance journalists. These workers aren’t currently afforded the same benefits guaranteed to employees, such as paid sick leave, a guaranteed minimum wage, overtime pay, unemployment benefits, the right to unionize and workers’ compensation.
Jacobs said it’s low-wage workers who most suffer the consequences of misclassification. “Those are … by and large low-wage occupations—janitors, cleaners, truck drivers, retail workers [and] childcare workers,” he said.
Kincl, the part-time music teacher, books her clients through an online company that handles transactions and allows her to balance work with raising three young sons. “I just get to focus on teaching,” she said. “I don’t have to worry about the business aspect.”
While the exact number of independent contractors in the United States is hard to pin down, they’re estimated to make up between 6.9% and 9.6% of all workers.
Whether companies in California offer nontraditional workers the opportunity to become employees will be tested in the coming months. But state budget officials have one reason to hope they do: The California Labor Commission estimates employee misclassification costs the state $7 billion annually in payroll tax revenue.
A state judge has already exempted 70,000 independent truckers from AB 5, and organizations representing freelance photographers and writers are also suing the state.
Lyft and Uber are pooling their resources to qualify a November ballot referendum that would exempt their 900,000 drivers from AB 5’s requirements. The “Protect App-Based Drivers and Services Act” offers different worker protections, including an earnings minimum of 120% of the minimum wage. It’s estimated that drivers make between roughly $11 and $16 hourly, after the cost of vehicle upkeep, which is their responsibility.
The referendum would also require the ride-share companies to offer a rest policy, health insurance stipend and sexual harassment prevention policies.
Many of the protections were made standard by the labor movement of the 20th century. But union membership in the private sector has dipped—from one in three employees in the 1950s to one in 20 in 2016, according to the Economic Policy Institute. That could impact the wages and conditions of all workers. According to the same EPI report, strong union membership can bring up wages and ensure benefits for even non-union workers.
But the U.S. Supreme Court dealt a serious blow to unions in 2018, when it ruled they couldn’t collect dues from non-members, even if they benefit from the unions’ collective bargaining efforts.
“The process isn’t over,” said Steve Smith, communications director for California Labor Federation, which supports AB 5. “This is an issue that has gone on too long. It’s hurting too many and needs to be addressed.”