As COVID-19 Spreads, California Wages War With Gig Businesses That Would Save The Most Vulnerable

Tuesday, March 24, 2020
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Late last week, California governor Gavin Newsom issued a stay-at-home order for nearly all California residents, shuttering most of the world’s fifth largest economy. This shutdown remarkably increases the need for on-demand drivers for delivery of groceries, medications, and prepared food to California households, particularly the oldest and most vulnerable.

California is home to Uber, Lyft, DoorDash, ChowNow, and other innovative businesses that have developed and implemented breakthrough algorithms that have transformed on-demand driving and food-delivery services. These innovations have benefited consumers enormously and have created millions of opportunities for workers. (Source: estimated drivers for just Uber and Lyft in the United States are 1 million to 2 million.)

With these technology unicorns headquartered in California, they should be ready to spring into action and help deal with the crisis, together with state and local governments providing support. And just think how many furloughed Californians would want to drive to replace lost income and support their communities. Last week, 80,000 California workers filed for unemployment insurance on Tuesday alone, compared to an average of about 2,000 per day before that.

But Newsom and the California state legislature, along a party-line vote, have outlawed the incredibly creative business model of on-demand driving and delivery services. All these gig businesses hire drivers as independent contractors. This is a win-win, as about 80 percent of independent contractors prefer this work relationship, because it affords them considerable flexibility in scheduling how much they work, when they work, and where they work.

The state government claims that Uber and Lyft are taxi services and that DoorDash and ChowNow are food-delivery services, however. These gig companies disagree, identifying their main business line as information technology and software development. 

Gig companies have pledged $90 million to fight AB 5, including filing a lawsuit on equal-protection grounds and collecting signatures to qualify for a November ballot initiative that would repeal the law.

Rather than being able to ramp up their businesses with existing successful software, gig companies are now spending their capital to protect against an incredibly overreaching state and are spending their technical talents on redesigning software to deal with the new law.

Just when gig companies need to expand enormously, 62 politicians tell them and their independent contractors that they can’t continue the business relationships that have done so much for so many and that are so important now.

To defend this severe intrusion on the ability to choose how you earn your livelihood, state government claims that independent contractors need state protection from exploitation and access to disability insurance and unemployment insurance.

These defenses are implausible. Exploitation? Nearly all gig workers provide services for multiple gig companies. If one doesn’t like the working conditions at Uber, they simply drive for Lyft. By driving for competing companies, gig workers are realistically pushing their compensation up to its maximum level. And keep in mind that Uber, Lyft, and these other gig companies have yet to turn a profit.

In terms of social insurance, it would be simple to allow independent contractors to buy into the state disability fund. And unemployment—not being able to drive for reasons other than cause—does not exist for gig workers.

California’s new law is an enormous political payoff to labor unions, who are among the most important political supporters of the Democratic party’s incumbent politicians. The new law provides hundreds of thousands of new workers for union organizing efforts once these workers become formal employees rather than independent contractors.   

The law was supported strongly by the state’s biggest unions, including the California Labor Federation,  the Service Employees International Union, and the California Teachers Association.

And just to dispel any doubt, the bill’s author, Assembly member Lorena Gonzalez, tweeted that she “would love if all employees were unionized.”  

More broadly, this destructive law illustrates the dangers of a one-party supermajority state. Every major elected statewide California official is a Democrat, and both state legislative houses have comfortable Democratic supermajorities.

Republican lawmakers objected to this law long before it was passed. The California Senate Republican Caucus offered far-less-intrusive bills of their own before AB 5’s passage, and both the Republican Senate and Assembly Caucuses have offered bills that would repeal AB 5 since its passage. 

But in this one-party state, California Democrats can conveniently ignore Republicans. Since there is no competitive check, Democrats can run roughshod over the personal freedom of nearly 40 million Californians, and thus far there is almost nothing that can be done about this.  

Last week, Republican assemblyman Kevin Kiley wrote to Newsom, urging him to suspend AB 5: “At a time when most Californians can’t work outside the home, AB 5 is stopping many of them from working inside the home.”  

California Senate Republican Caucus Leader Shannon Grove (R-Bakersfield) also has urged the governor to suspend AB 5: “In my district, I am aware of about 70 certified nurse anesthetists who want to go to work to provide the crucial health and safety needs of our community, but they are forced to sit at home because of AB 5.”

AB 5 is a destructive law, and there is no worse time for it to be affecting California. Governor Newsom should suspend AB 5 immediately. And when state legislators return to the Capitol, they should pass SB 806, the repeal and replace bill offered by the Senate Republican Caucus. This would largely return the determination of independent contractor status to the commonsense definition applied before AB 5.