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California’s AB5 Should Not Be a Model for the Rest of the Country

AB5 Tests Revoke Worker Autonomy.

State and Federal legislatures must not make the same mistakes already made with California’s AB5 law that uses an impassable ABC style test, unfairly classifying most workers as employees. California’s AB5 law has proven to be disastrous for the economy, the supply chain, and for workers who overwhelmingly prefer to be self-employed. Since AB5’s enactment (2019), the California legislature has been engrossed with requests for industry exemptions (75+), experienced a majority voter upheaval (58.6%), and endured layers of litigation all the way to the U.S. Supreme Court. If legislators ignore these warning signs from California, it will be perilous. The people have spoken on the issue, and they prefer flexible work in self-employment over the intrinsic restrictions of employment. The preference to work independently has grown exponentially to 64.6 million independent workers in 2022, up 26% over 2021. People want to regain control and autonomy over their life and their career, and they are happy doing it, with 76% reporting that they are “very satisfied,” 87% saying they are happier, 80% reporting better health, and 67% feeling more financially secure than their traditionally employed counterparts. These statistics should make it obvious to legislatures that workers want to be independent contractors.

Advocates for AB5 claim non-employee workers are disadvantaged without typical employee benefits and government programs like unemployment insurance and workers compensation. However, independent workers have had access to all the needed protections and benefits for the better part of a century through viable private sector third parties, who provide solutions that exceed the governmental counterpart. Proponents of the restrictive law are focused on an agenda dictated by their desire to increase state taxes and meet labor union initiatives. What AB5 proposes is deeply out of touch with today’s workforce who desire flexibility as independent contractors, something employment cannot fundamentally offer in any meaningful way.

Unionization Efforts are not Solved With AB5.

Labor unions’ goal of increasing their participation ranks will not be achieved with AB5 because not all workers want to be employees. AB5 was ushered in by Unions under the guise of providing workers needed “protection”; but, when given an opportunity to vote on unionization, workers have rejected the unions.  

For instance, the Teamsters aren’t doing very well with employee drivers in California after AB5’s passage. The results of a unionization vote that happened last summer (ca. 2021) with port drivers, the main targets of the union efforts to pass AB5, were unsealed recently. The port drivers working for STG Cartage LLC rejected the Teamsters by a vote of 165–76 in the representation election. When given the option, drivers want to be independent; forcing unionization contradicts this right.

The Bureau of Labor Statistics 2022 News Release further demonstrates AB5’s failure to achieve its union goals. The 2022 unionization rate (10.1 percent) was the lowest in its history. Two states alone make up the 30% of the 14.3 million union members (California at 2.6 million and New York at 1.7 million). These states accounted for about 17 percent of wage and salary employment nationally and neither have experienced increased unionization rates. 

AB5 Tests Harm Minority Populations.

The growth of independent app-based work in California has provided major benefits for the state’s communities of color, especially during the financial challenges stemming from the pandemic. When the state’s economy entered a deep recession due to COVID-19, more than 800,000 Californians turned to app-based rideshare and delivery services for the first time, earning income which helped provide for themselves and their families. A report from 2021 found that app-based drivers in California earned $4.2 billion in income throughout the first year of the COVID-19 pandemic, with a significant percentage of them being workers of color.

In opposition to California’s AB5, Dr. Tecoy Porter Sr., Director from Al Sharpton’s National Action Network in Sacramento, CA, stated: “AB5 perpetuates the current inequitable employment-based system that pushes out communities of color, the disabled and the disadvantaged. Rather than lead to stronger employment-like benefits, AB5 will eliminate earning opportunities for hundreds of thousands of Californians – most of whom are minority.  

In addition, the U.S. Census Bureau finds 3.5 million moms of school-age children have left active work, shifting into paid or unpaid leave, losing their job, or exiting the labor market altogether since the start of the pandemic. In response, women across the country are turning to independent work such as app-based delivery in place of traditional employment because it offers the independence and flexibility to work on their own schedule, while offering higher earnings than many other part-time jobs.

“While home and unemployed, Moore, a single mom who had at the time recently separated from her husband, signed up to work with Instacart, a grocery delivery service. Moore says she is now making nearly five times what she did in her school district job. And since she can set her own schedule, she does not have to put her children in daycare. ‘If I was working in an office, corporate-style job, I would be paying for daycare and I wouldn’t have been able to afford it,’ she said. ‘Now I’m home every night with my daughters. I’m able to take them to sports and be home with them for homework. I can take off if my kids are sick.’” AB5 tests for employment eliminate flexibility and ultimately sets women with children further back.

AB5 Invited Market Chaos.

A closer look at the largest market disruption in California resulting from AB5 has been in the trucking industry at the port markets in Los Angeles, Long Beach, and Oakland, wreaking havoc with America’s supply chain. Cindy Perez is one of the 70,000 owner operator truckers servicing the ports in California and puts a face to those who have had their livelihoods threatened by AB5. Perez, a 28-year-old Long Beach driver for her owner-operated company, Aztec Enterprises, said she would continue leading the protests “as long as they continue showing up.” “Our goal is to get exempted from [AB5], to get carved out from it, just like other industries,” she said. “And if we’re not, we at least want to know why.” Such trucking disruptions will wreak havoc with international ports operating in the essential supply chain all over the country.

Further, mail delivery service is the core purpose of the U.S. Postal Service and yet “The U.S. Postal Service uses contracted delivery suppliers to support mail delivery needs and ensure it meets its universal service obligation.  CDS is a contractual agreement between the Postal Service and an individual or company for the delivery and collection of mail for customers. … CDS suppliers are not Postal Service employees, but independent contractors who provide delivery service on specific routes.” AB5 tests will find the U.S. Government in violation of the integral factor as it is applied in the B prong of these ABC tests; the U.S. Government, one of the largest utilizers of independent contractors in an integral function of its business, will be found an employer of all U.S. Postal Service delivery drivers.

Analysis of the Massachusetts and California ABC Tests shows the likely consequence of restricting the ability of workers to operate independently is a loss of employment. Some independent positions may be transformed to fit an employee-model, but many positions will not. The Massachusetts analysis showed a loss of “58% of these earning opportunities in the state.” The California Legislative Analyst’s Office reached a similar conclusion.

Independent contractors hold an essential role in the U.S. economy; in 2017 alone, independent contractors generated approximately $1.7 trillion of revenue for the U.S. economy. Within 2017, there were over 10.6 million workers operating as independent contractors (approximately 6.9 percent of U.S. workers).  This number has increased astronomically, with approximately 64.6 million full-time and 31.9 million part-time independent workers in 2022. Preventing workers from operating independently with the implementation of national ABC tests will result in a far greater impact to businesses than is considered by legislatures.

The Spread of AB5 Tests Needs to be Stopped for the Good of the Country.

Should the nationwide spread of AB5 tests continue, legislatures will need to have a ready explanation for creating a restrictive and unreasonable independent contractor classification that will wrongfully reclassify bona fide independent contractors. The claim that AB5 tests are created for the protection of workers is not only unsupported but invalidated. It is pertinent that legislatures learn from the detriment created with California’s AB5 and recognize the power independent businesses hold in the economy. ABC style tests such as AB5 are contradictory to public welfare, and as the desire for independent work continues to rise, it is the responsibility of the legislature to protect, support, and foster independent businesses.

AB5 and legislation like it are not limited to a specific set of states; given the current Presidential administration’s desire to federalize the AB5 test, the consequences of AB5 legislation are a threat nationwide.  The only hope to combat adoption of this narrow standard is to stay proactive and become involved in organizations that are willing to speak out.  To learn more about how to protect your independent business against misclassification or to get involved in the battle against the spreading AB5 legislation, contact the SCI Legal Department at 518-746-4090.

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ECA: A – Delivery Industry Alliance
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