On January 1st, 2020 a new law called AB 5 went into effect in California. It has had devastating consequences for the gig economy in the Golden State. California has long had a reputation for creative and entrepreneurial leadership, and in one fell swoop, a badly written law has affected around 2 million people, causing some to close their businesses, others to lose all their clients, and forcing many to consider leaving the state.
The law was written by the AFL-CIO, and for legal purposes authored by Assembly Woman Lorena Gonzalez, whose major political contributors are the unions. It was passed by the Democratic super majority in Sacramento.
Ostensibly, the law was written to address a very real problem. Companies like Lyft, Uber, Postmates, Instacart, DoorDash, and other tech-based platforms use a freelance model for their contractors. Their payment models do not include withholding social security, unemployment, etc. like other payroll W2 companies. Likewise, there has been a large push among other companies, like trucking companies, etc. to turn their salaried employees, with benefits, overtime, etc. into independent contractors, and moving the payroll cost and burden onto those employees, who would have even less protection and benefits.
The Supreme Court stepped in, in 2018 with the Dynamex decision, where a company had turned its salaried employees into contractors. For those workers, nothing changed, in terms of their day-to-day work obligations. A worker named Charles Lee sued and won. The Courts weighed in, and issued a new test, supplanting the existing Borello test, with the ABC test.
- The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
- The worker performs work that is outside the usual course of the hiring entity’s business.
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
The AB5 proponents took the Dynamex decision and used it to create the AB5 Law. They attached a ton of carve outs for special interest groups and attached $20 Million in funds “assist smaller independent companies to transition their contractors to employees”, but the real reason appears to be so that the CA EDD could go after companies that “Misclassify” 1099 contractors who the EDD thinks should be W2 employees.
The fines are terrifying, in they could range from $5000, to $25,000 per person, plus back payment for all Social Security, Unemployment, et cetera. The fear of these fines, and the vague and arbitrary nature of the AB 5 Law as written, are creating havoc for employers and small businesses in California.
Ironically, Uber and Lyft are saying they are exempt from the laws, and are fighting them as unconstitutional in court, and have the deep pockets to fight this. Meanwhile, hundreds of thousands of freelancers and small business are being impacted.
Among the various problems with the AB5 law
There are a variety of arbitrary groups being exempted, including doctors, lawyers, dentists, and other well-heeled groups who could afford lobbyists, and get their carve outs. It’s rather absurd that Doctors who go to the same office every day and use company provided equipment are exempt, but musicians and other performers who work at hundreds of gigs and events a year are now required to be W2 employees, for each, even if the gig is only for an hour or two.
Another problem is the exemption for “Fine Arts” but there is no definition of that is, and even conversations with the CA EDD, do not clear up the questions.
Some of the arbitrary rules include the rule that freelance writers are only allowed to do 35 pieces for a client before that client is required to make them an employee. There is a strong belief that this rule conflicts with the 1st Amendment and is being challenged.
The new law also stipulates that people can only get advice from attorneys (who are exempt, naturally) and not tax professionals, who could be fined if they attempt to help their clients with the confusing law. This is a severe challenge for small companies who can’t afford the legal fees.
Over 157 separate job titles who work in the gig economy have been affected. Some of the ramifications are still coming to light. Court Reporters are almost always Independent Contractors (IC’s) and legal proceedings are required to have them. The medical industry also depends on transcribers, translators, and health care providers, of whom many are IC’s. This has also impacted some of the most fragile communities, including seniors, and minorities, who are now without legally mandated interpreters, translators and more.
The Performing Arts, Variety Arts, Musicians, and Journalists have been massively impacted.
Most small arts organizations don’t have the budgets to turn all their staff and performers into salaried employees, as to put them on payroll adds 30 to 40 percent to the cost of using them. And so, theater, opera, and scores of other artistic venues are shutting down productions. Schools and libraries who have storytellers and other performers doing events and assemblies for them are canceling contracts and even entire productions, some of which have been presented to their communities every year for decades, because they are simply not set up to bring these people onto their payrolls. The great dichotomy here is that those organizations are often union, and those teachers and librarians may not even realize that their union dues are being used to destroy the freelance artistic community in California.
Small businesses, like wedding planners, and video production companies who depend pulling together teams of talented freelancers, can’t afford to make everyone a salaried employee. Those independent contractors who depend on a variety of clients are finding that they are not being hired because companies, and out of state companies don’t want to risk being hit with massive fines by the California EDD.
Even major online news services have been affected. SB Nation, owned by Vox Media, announced even before the law took effect Jan. 1 that it was ending its use of more than 200 California freelancers, switching instead to using a much smaller number of new employees. Other online services are simply opting not to use California writers at all, effectively destroying the careers of many of them.
A federal judge has set a hearing in March to consider a lawsuit by the American Society of Journalists and Authors and the National Press Photographers Association arguing that the law unconstitutionally affects free speech and the media.
Organizations have been springing up to push back against the AB5 Law, protests organized, and groups are coalescing online. A good resource for those affected is the “Freelancers Against AB5” on Facebook.
Sadly, the author of the Bill, Assembly Woman Lorena Gonzalez, from the 80th district in San Diego, has proven amazingly tone-deaf and heartless to the impact of the AB5 bill and the lives and small businesses it is destroying. At a recent event, voters from her district who showed up to protest AB5, she labelled them “Trumpers” and yelled “F&CK Trump!” attempting to label them all Republicans (the protesters were in fact, from a variety of political parties, and many were democrats from her district.) Recently, she and other Pro-AB5 people have started calling folks trying to get AB5 repealed “Labor Brokers” a nasty racially and classist charged term, used since the great depression to smear people. This is also a sad statement from a state employee, in that many of the Freelance community are also Union members, and pro-union. Lorena Gonzalez is seemingly unaware of a very basic fact, that people have agency, and the right to choose how they make their living. The modern economy is no longer the binary economy of the 50’s, and AB5 does not account for that. She is currently refusing acknowledge the pain the law is causing tens of thousands of people.
When asked about how the Independent Contractors can avoid becoming W2 employees, and convince businesses to hire them, she tells them to Incorporate as an LLC. This B2B (Business to Business) solution, is not actually a solution, because even as an LLC, if the Independent Contractor does not pass the vaguely written ABC rules, the company still gets fined. When asked about this, she has no cogent response, other than “we will fine tune this in later bills” (and that process could take years.)
AB5 is impacting California citizens now, in that already people are literally ending up homeless, having to move, and close their businesses. Unless AB5 gets repealed very quickly the damage to the very important freelance and gig community could be too late to reverse, damaging hundreds of thousands of lives, and knee-capping the California creative economy to the tune of hundreds of millions or even billions of dollars.
Even the author of AB 5 recognizes the law is destroying lives
Assembly Bill 5 by former labor leader Assemblywoman Lorena Gonzalez (D-San Diego), has already significantly limited Californians’ ability to work as independent contractors and freelancers. It was revealed during Senate debate in September that the AFL-CIO wrote AB 5. It is the largest federation of unions in the United States, and apparently Gonzales took the whole thing and pushed the bill through as written without considering the consequences.
Gonzalez recognizes that AB 5 has serious flaws, but she thinks she’s going to fix the flaws by patching it over time. In the meantime, freelance and independent contractors’ businesses are shutting down or fleeing the state on a daily basis.
California Republican Assemblyman Kevin Kiley led a Repeal AB 5 Rally in Sacramento, California on January 28 at the State Capitol. The rally was attended by hundreds of independent contractors and freelance workers. Kiley is now pushing a new bill, being voted on today in the California legislature. Assembly Bill 1928 is an emergency measure to suspend AB 5 while corrective legislation is under consideration. Senate Bill 868 became active a few weeks ago, which seeks to overturn AB 5. Assemblywoman Gonzalez’ corrective bill AB 1850 seeks to correct some of the deficiencies of AB 5, but the changes it proposes are being criticized by many as being arbitrary and a hasty patchwork whose ramifications aren’t any better understood than the original bill.
“Governor Newsom: we are here today to tell you that your vision cannot be reality as long as AB 5 is on the books,” Assemblyman Kiley said at the rally. “Governor, your own former deputy chief of staff called AB 5 ‘one of the most destructive pieces of legislation in the last 20 years.’”
If they don’t do something radical, very quickly, a large and significant part of California’s economy will simply collapse.
More than 150 professions are impacted by AB5, “hardly an industry or trade is unscathed,” Kiley said. “This is what happens when humanist values give way to brute political force.”
Editor’s Note – Krypton Media Group is one of the thousands of small companies that may be affected by AB 5. So far we’ve managed to avoid the problem by limiting contributions by California based writers to 35 pieces per year, but the law is so badly written that we consider even ourselves at risk.
So, yes, we do have a dog in this fight, and we do have a bias. Radio is our main business, but a part of that is providing a news service for our listeners as part of our online community. AB 5 threatens that directly, and it threatens the livelihood of many of the people who contribute to the pages and airwaves of SCIFI.radio.
We never publish on political topics. Ever. But this one strikes so close to home and affects the entertainment and journalism industries in a breathtaking scope, and it affects people we love.
Robert Seutter is a graduate of USC’s Navy-Marine Cinema Program; a professional storyteller, known as True Thomas; a sci-fi novelist; a scholar of folklore, myth, and legend; a proud geek and a gamer since D-20 dice were carved from mastodon bones!