June 01, 2020
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Searching for a way to protect workers in the gig economy

Rich Pedroncelli | AP
Rich Pedroncelli | AP
Dozens of supporters of a measure to limit when companies can label workers as independent contractors rallied at the Capitol in Sacramento, California, on Aug. 28, 2019. As approved by the legislature and signed by Gov. Gavin Newsom, AB5 requires companies like Uber and Lyft to treat their drivers like employees.

As the gig economy sweeps through more industries, many of us are benefiting from the extraordinary convenience and lower prices that companies such as Uber, Lyft, DoorDash and others provide. But what about the workers?

Are Uber and other sharing-economy companies heroes for creating hundreds of thousands of jobs that provide workers with greater flexibility and control over their lives? Or are they villains who are undermining basic labor protections and increasing the societal divide between the haves and the have-nots?

The answer, of course, is both. As such, a solution should reflect the reality that gig economy workers lie somewhere between full-fledged employees and independent contractors.

Some countries, such as Spain and Canada, have already tackled this question. They have established a category of worker called “dependent contractor.” Under this concept, when workers earn a certain portion of their income from a single company — 75 percent in Spain and as high as 80 percent in Canada — and meet certain other criteria, they are provided intermediate protections and benefits such as notice of termination, collective bargaining and minimum rest periods that stop short of what employees are entitled to. Companies aren’t required to pay benefits for someone who works only sporadically to supplement other income.

Unfortunately, California didn’t follow that path.

Instead, the Legislature pushed through Assembly Bill 5, a measure that categorizes the vast majority of gig economy workers as full-time and part-time employees entitled to all the protections and benefits that such employees receive. Uber, Lyft and DoorDash, perceiving an existential threat to their business, have responded by unveiling a $90-million campaign to undo AB 5 with a statewide initiative in 2020.

The ballot initiative that Uber, Lyft and DoorDash are proposing would offer drivers guaranteed pay that is 120 percent of the minimum wage when they are driving, but they would not be paid while waiting for fares. It would also provide stipends to cover health insurance, 30 cents a mile and accident insurance.

Is it a good deal for gig economy workers? Many think it isn’t, and many workers and organized labor will fight hard to preserve AB 5 and defeat the ballot initiative. This lays the groundwork for a political battle royale that will pit labor against business in the next statewide election with high stakes for both sides.

Instead, labor and the companies would be smart to negotiate a settlement. First, labor and the workers can probably negotiate better wages and terms in return for sparing the companies a bruising political campaign that will probably do substantial damage to their brands.

Second, it’s important to remember that Uber and many other gig economy companies are not profitable. Uber is currently losing more than $1 billion a quarter and is likely to have an extremely difficult time raising future rounds of capital. This is especially true if it is forced to pay higher wages and benefits — and profitability is no longer in sight. If Uber or any of these companies goes out of business, everyone loses. A negotiated compromise could obtain higher wages for workers without putting companies on the hook for full benefits for all.

California leads the global innovation economy, and we need to find ways to make this innovation work for everyone. Labor and our elected officials are right to stand up for working people and to make sure that all workers get basic protections. The challenge is finding a smart way to do that with companies that are hemorrhaging cash.

The gig economy is still new and its impacts have not yet been quantified or even fully understood. As it wrestles with this new industry, California would do well to consider innovative approaches — such as a dependent contractor classification — already used in other countries. The sooner there’s a resolution to this fight, the sooner we can get back to dealing with other big policy issues.

Steve Westly is a former California state controller and managing director of the Westly Group, a venture capital firm. This column was originally published by the Los Angeles Times.


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