A new law in California changes the status of many Uber drivers from freelancers to full-blown workers. This law, called AB-5 has drivers in New York and New Jersey putting on their Union hats and lobbying congress in favor of similar legislation. The problem is that since the law was implemented on January 1st, companies that rely on gigs like Fiverr, Uber, and modern media companies (Zest, Planable.io, etc.) have stopped hiring Californians.

IT freelancer busy at work

Freelance journalists say that former clients will no longer hire them because their formal employee status translates to unnecessary expenses. Companies that depend on flexible standards for freelancers have spent more than $10 billion in opposing the bill. Their compromise involves tweaking the definition of a freelancer and repealing AB-5, also called the “gig economy bill.”

The problem with on-demand employment is that it is basically the futuristic equivalent of an informal job selling bubble gum or shining shoes. That means there is no formal organization that will stand up for you in the event of an accident or some other imbalance.

For example, there is the issue of minimum wage. In California, this number is currently $12/hour. This is congruent with the rate most Uber and Lyft drivers count on, which is between $9 – $16/hour, but there are many people who depend on Uber who feel that this variation is injust and does not cover their day-to-day expenses. AB 5 would push for Uber to recompense drivers with the official minimum of $12 in California.

What are Gig Companies?

The new Californian law is formally known as Assembly Bill 5. It became active on January 1st, and has been causing intense controversy. It calls for a strict mandatory internal evaluation that minimizes the amount of contractors a Californian company can consider “freelance” or “temporary.”

It makes it harder for companies to hire workers as contractors. According to a survey by Upwork, there are currently a reported 57 million American freelancers contributing more than $1 trillion to the economy annually.

The origin of the bill is known as the Dynamex decision. It describes a three-pronged “ABC test,” which measures who qualifies as a freelancer and who is an employee with benefits.

The New York senate is currently considering a similar bill to AB 5, which passed on Sept. 18 and took effect on January 1st. Minimum wage, worker’s compensation, and health benefits are at the center of the complaints against companies like Uber and Postmates who employ freelancers on-demand.

Worker’s compensation is a social support system that has saved countless families from dealing with real hunger and economic ruin. In the past, Uber drivers who were involved in accidents often had to count on third party legal and insurance companies who charge Uber drivers as well as passengers. With AB 5 in effect, it the costs once incurred by the driver himself could shift onto Uber’s shoulders.

Uber driver

What Does This Mean for Freelancers?

Although it began out of the best of intentions, this law brings tons of unintended consequences for the Californian freelancer. These include less hiring, less flexibility for workers, and unless accountants can get crafty, ultimately it will result in more expensive apps for the end user.

The “B” prong in the ABC test presents the biggest hurdle for freelance journalism. It states that employers can only contract for work that is “outside the usual course of the hiring entity’s business.” Californian journalists that contribute news writing to a company that literally sells news, must then be paid full benefits.

The people in this field now have an infamous 35-story limit on their work with a company or blog before they must be considered employees with benefits.

Another change coming to Californian society will be Uber’s issuing minimum amount of time on the road for their driver-employees. In this case, that means anybody who intends on making casual trips on his/her way to work will probably no longer be eligible to drive for Uber.

Looking Ahead

Uber, Lyft, and Postmates are among a group of tech giants that are negotiating with lawmakers and labor unions to create an alternative sort of worker. This new class of contractor-employee hybrid will basically be a contractor with added benefits.

AB 5 is a test of fire. Will the Uber of 2030 still be a tech company that connects drivers and riders? Or will it be a transportation company that uses technology as a key part of its business model?