Assembly Bill 5 and its impact on the gig economy
On 18 September 2019, California legislators signed Assembly Bill 5 into law. This law will come into force from 1 January 2020.
The bill states that a person should be classified as an independent contractor only if “the person is free from the control and direction of the hiring entity in connection with the performance of the work… [and] the person performs work that is outside the usual course of the hiring entity’s business”.
The reach of this new law goes far beyond the state of California, as New York, for example, is also reconsidering its classification of employees and contractors and other US-states may follow the example of California. In London, Uber is facing a lawsuit that deals with the classification of drivers. Two previous rulings in the UK went against Uber. In the latter ruling of December last year, the court of appeal attested Uber a “high degree of fiction” in their standard contractor agreements with drivers. Uber is now taking the case to highest authority of the Supreme Court.
In Brazil, however the Superior Court of Justice, the country’s second-highest court, ruled that drivers are not employees but contractors. This ruling came after a driver sued Uber for loss of income due to the company’s suspension of his account. The Brazilian court ruled that, “The app’s drivers have no hierarchical relation with the Uber company because their services are provided now and then, with no pre-established timetable and they do not have a fixed salary…”.
The reach of this new law goes far beyond the state of California
Independent contractors as basis of platforms’ business model
The wording of Assembly Bill 5 leaves it beyond doubt that platform drivers – i.e., those working via Uber, Lyft, Ola, Didi, Yandex. Taxi, and Taxify – are in fact employees and should thus qualify for work-related benefits like paid holidays, sick leave, and pension contributions.
Moreover, a substantial portion of gig workers – Deliveroo, Helpling, Amazon Flex – and crowd workers – Mechanical Turk – could be covered by the law. This also questions the classification of all kinds of subcontractors and contractors, including cleaners, babysitters, and animal sitters.
Because many platform ride-hailing companies are still struggling to turn a profit, the law is a threat to their business model. One of the core strengths of platform businesses is that they can scale up quickly and rely on a lean cost structure using highly automated processes, as well as a flexible and low-cost workforce that doesn’t enjoy work-related benefits.
According to business sources, relying on employees instead of contractors will raise platform company costs by 20-30%. Considering that many of the ride-hailing companies are still burning venture capital, this law could be a serious blow to the future existence and popularity of these platforms, at least in the US.
Precarity in the gig economy
The gig economy is on everybody’s lips. The initial euphoria for tech companies seems to have diminished and given way to a more critical outlook on its impact. Many argue that the new digital working contract within the realm of market capitalism leads to income insecurity, low pay, unreliability of work, poor communication with requesters and precarious working conditions. Attention has also been drawn to gig workers’ contractor status by platforms that act like employers in the way they structure and distribute tasks.
Because many platform ride-hailing companies are still struggling to turn a profit, the law is a threat to their business model
Additionally, some argue that there is substantial downward pressure on income because there is an oversupply of gig workers. Stress, anxiety, and the lack of representation of workers in trade unions are often taken up as issues too. The lack of control or ability to appeal when “people analytics and digitalized profiling” lead to ‘firing’ is seen as a serious downside of the gig economy. Another aspect that has been gained attention are unduly costs and risks that lower qualified gig workers face.
Flexibility was thought by many to be one of the advantages of gig work but platforms vary in the degree of actual flexibility they provide.
Upsides for the gig economy workforce
However, there is also research showing that in three out of the four largest US cities, the wage per hour was higher for Uber drivers than drivers from other taxi companies between 2009-2015. One of the main reasons for the higher hourly pay for Uber drivers was that in three out of the four cities, time and miles driven with a passenger were dramatically higher for Uber drivers, thanks to the company’s powerful matching algorithm.
Research findings from interviews with taxi drivers in Moscow and Beijing establishes the idea that individual perceptions of quality of work are very much informed by the individual background of drivers. In the UK, Berger, Frey, Levin, and Danda suggest that Uber drivers’ level of life satisfaction is connected to the high level of flexibility they enjoy. Being able to accommodate their individual schedules with providing rides as Uber drivers is something they value highly.
According to the ‘Rideshare Guy’ blog, a majority of drivers (75.9%) prefer their status as independent contractors, although they know that Uber, for example, heavily influences the way they conduct their work. For up to 80% of drivers, Uber is a part-time job and many of these part-time drivers would probably not prefer to be employees. On the contrary, the 20% of drivers who work full-time for Uber would more likely be in favour of being employed.
There are serious downsides to working conditions in the new platform economy. It can be difficult to make a living wage working full-time as a platform driver when not owning the car. Additionally, the lack of paid benefits like paid leave and sick leave can be detrimental to drivers’ long-term health, especially those working full-time through platforms. In contrast to what platform companies may argue, companies usually have significant leverage on the way drivers perform their work. Companies need a highly available, on-demand workforce to meet demand even during peak hours, thus they have an inherent interest in having as many workers available as possible. That’s why companies try to nudge drivers into certain behaviours with incentives like bonuses for weekend shifts, and surge pricing. But they also have management tools at hand – like showing the final destination of a ride only after passenger pick-up – which exercise control and reduce worker satisfaction.
Providing more security for gig workers is commendable but moving back to 20th-century forms of employment is clearly not
Quickly changing working conditions such as fare/rate changes and the lack of worker representation and established bodies for appealing unilateral company decisions like the suspension of accounts are also serious problems. California’s new law is therefore a milestone in addressing these important questions and has appeal beyond California.
What one should not forget though is that many of the Uber drivers – and gig workers more widely – highly value the time-flexibility of their jobs. Drivers don’t simply buy into the ‘be your own boss’ talk deployed by platforms company PR divisions. According to my interviews with platform workers in Beijing, Moscow, and Berlin, platform drivers genuinely appreciate being able to turn on their app and work when and where suits their needs.
This new legislation could make companies like Uber downgrade the flexibility they offer drivers and request drivers to sign up for shifts on a daily or weekly basis with less ability to cancel accepted shifts. Also, the area where drivers provide their services might be restricted in order to better coordinate demand with the newly ‘employed’ workforce.
All in all, it is high time to improve workers’ rights. Measures that promote a guaranteed minimum wage, the possibility to appeal unfair decisions and ratings, and the ability for drivers to set their own fare rates would be highly welcomed. This new legislation should also cover those working precariously in several jobs in non-tech sectors.
However, in order to also keep the benefits that new technologies provide to gig workers, like time-flexibility, legislators should emphasise certain aspects of the gig economy that are worth preserving. Providing more security for gig workers is commendable but moving back to 20th-century forms of employment is clearly not. Rather, the opportunities and benefits that technology provides should be paired with a high level of fairness and transparency.
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Huws, U., Spencer, N., Syrdal, D., & Holts, K. (2017). Work in the European gig economy: Research results from the UK, Sweden, Germany, Austria, The Netherlands, Switzerland and Italy. University of Herdfortshire;
Srnicek, N. (2017). Platform capitalism. London, LSE Press
 Graham, M. (2019). Digital Economies at Global Margins. Cambridge, MA: MIT Press.
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Kashyap, R., & Bhatia, A. (2018). Taxi Drivers and Taxidars: A Case Study of Uber and Ola in Delhi. Journal of Developing Societies, 34(2), 0169796X1875714. doi:10.1177/0169796×18757144
 Lehdonvirta, V. (2018). Flexibility in the gig economy: managing time on three online piecework platforms. New Technology, Work and Employment, 33(1), 13-29. doi:10.1111/ntwe.12102
 One should note that significant unilateral price cuts (up to 15%) made by Uber on the fares drivers receive after 2015 are not accounted for in Frey’s study.
 Berger, T., Chen, C., & Frey, C. B. (2018). Drivers of disruption? Estimating the Uber effect. European Economic Review, 110, 197-210. doi:10.1016/j.euroecorev.2018.05.006
 It has to be noted that Krueger previously was commissioned by Uber to write an article: “An Analysis of the Labor Market for Uber’s Driver-Partners in the United States”. Moreover, the data on the utilisation rate was picked by Uber staff and given to the researchers.
 Hall, J., & Krueger, A. (2016). An Analysis of the Labor Market for Uber’s Driver-Partners in the United States. NBER Working Papers, 22843. doi:10.3386/w22843
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