SACRAMENTO, Calif. — A heated debate over a proposed California measure that would force employers such as Uber and Lyft to treat app-based workers as employees has sparked a million-dollar lobbying battle in the heart of the gig economy, a fight that could spill over to the ballot box next year.

The proposal, policy and economic analysts say, could cost some of California’s hottest tech companies such as Uber, Lyft and DoorDash billions of dollars in benefits and salaries they would have to begin paying for app-based workers.

ADVERTISEMENT

Supporters of the bill say it is necessary to prevent mistreatment of workers who are misclassified as independent contractors when their employers should be treating them as employees who deserve benefits and a minimum wage.

The driving force behind the bill is Lorena Gonzalez, 47, a former labor organizer who represents parts of San Diego in the California Assembly. In an interview in her office, Gonzalez said she hoped to create clarity for businesses and workers in a rapidly evolving economy.

“In some ways, it’s appropriate for it to happen in California. We created the problem. Big tech is the reason we’ve been successful in so many ways, but it’s also the reason we have enormous and growing income inequality, homelessness and other problems in California,” Gonzalez said.

“It’s not about the future of work. It’s about the future of workers,” she said. “We as middle-class taxpayers are actually subsidizing these multibillion-dollar corporations who just are not paying their workers enough to get by.”

Gonzalez’s proposal, Assembly Bill 5 (AB 5), would codify into law a 2018 California Supreme Court decision known as Dynamex.

In that case, the court ruled that a worker is an independent contractor if he or she meets three criteria, known colloquially as the ABC test. First, the worker must be free from control or direction from the hiring entity. Second, the worker performs work outside the usual course of the hiring entity’s business. And third, the worker is customarily engaged in an independently established trade or business of a similar nature to the work performed.

ADVERTISEMENT

That suit, Gonzalez argues, already classifies gig economy workers as employees rather than independent contractors. But those workers could face years of lawsuits to force companies such as Uber and Lyft to treat them as such. Passing a new law would eliminate those costly suits.

“Workers would have to sue for enforcement, and that’s not a very practical way to enforce rights. We thought it would be practical to take the Dynamex decision, to codify it into law rather than have five or 10 years of lawsuits,” Gonzalez said. “We’re in this new economy, this tech economy, but in reality it’s work.”

AB 5 has already passed the state Assembly, and last month it cleared a key committee hurdle in the state Senate. That committee added several exemptions that would allow some industries to continue treating workers like independent contractors, including real estate agents, insurance agents, investment advisors, hairstylists and others.

The bill must still clear several other hurdles in the coming days. It faces a Sept. 6 deadline for any further amendments and a Sept. 13 deadline for final passage. Whether AB 5 meets either of those deadlines is unclear.

“We’re all over the place,” Assembly Speaker Anthony Rendon (D) said in an interview. “We’re not in a rush to make a bad deal.”

Gov. Gavin Newsom Gavin NewsomOVERNIGHT ENERGY: California seeks to sell only electric cars by 2035 | EPA threatens to close New York City office after Trump threats to 'anarchist' cities | House energy package sparks criticism from left and right California seeks to sell only electric cars by 2035 EPA head questions connection of climate change to natural disasters MORE (D) remains a wildcard. Newsom has not said how he would act on a bill that is still being developed, though Gonzalez said she foresaw more debate ahead.

“I think we’re probably approaching it from different angles. I think he’s been pretty public about wanting a compromise,” Gonzalez said.

Democrats hold supermajorities in both the state Assembly and the state Senate. But some Republicans said they would oppose the measure because it reduced a worker’s ability to earn a living in an increasingly expensive region.

“We’re labeled as one of the highest cost of living states,” state Sen. Shannon Grove (R), the Senate Republican leader, said in an interview. The bill “gave [Democrats] an opportunity not only for fundraising, but it’s their opportunity to go after industries that they’re not particularly fond of.”

The tech companies themselves, already hemorrhaging cash, have pledged an all-out fight for the right to continue treating those workers as independent contractors. Uber, Lyft, DoorDash and the Internet Association, a group that lobbies for the technology industry, have spent more than $1 million lobbying the legislature in just the past six months, much of it on AB 5, according to a review of California lobbying disclosures.

On Thursday, Uber, Lyft and DoorDash, the San Francisco-based meal delivery service, each pledged $30 million to mount a ballot initiative campaign if AB 5 passes.

“If we aren’t able to reach a deal, then we will take this issue to the voters,” said Adrian Durbin, a Lyft spokesman. “While it’s not our preference, we will go to the ballot if we need to.”

If the measure passes, Durbin said, Lyft would be forced to cut about 300,000 drivers, more than half its workforce in California. And it would rob drivers of the ability to set their own schedules and their own hours, he said.

"The number of job opportunities would decrease dramatically as we move to an employment model where drivers are on schedules. It would fundamentally change our business, and then drivers would be put on schedules, which they don’t want," Durbin said. "They would lose the flexibility. They wouldn’t be able to drive with multiple services."

The bill comes as both Uber and Lyft are trying to prove their strength to investors in the months since their initial public offerings. Neither company has turned a profit, and both of their stock prices are lower than they were when they went public.

Daniel Ives, an analyst and managing director with the investment firm Wedbush, said that he's waiting to how the bill is shaped in its final form, but he's estimating that it could raise expenses for the companies by as much as 15 to 20 percent.

"The biggest risk to the gig economies is the contractor versus employee argument," Ives told The Hill. "These business models are built on the contractor definition that's really enabled companies like Uber and Lyft to help build out a gig economy to what it is today."

"And I can tell you, from an investor perspective, from a company perspective, this has really become a pronounced threat," he said.

Still, the tech companies have recognized that political momentum is shifting against them. Three Democratic presidential candidates — Sens. Kamala Harris Kamala HarrisTexas Democratic official urges Biden to visit state: 'I thought he had his own plane' The Hill's Campaign Report: Biden on Trump: 'He'll leave' l GOP laywers brush off Trump's election remarks l Obama's endorsements A game theorist's advice to President Trump on filling the Supreme Court seat MORE (D-Calif.), Bernie Sanders Bernie SandersSirota reacts to report of harassment, doxing by Harris supporters Republicans not immune to the malady that hobbled Democrats The Hill's Morning Report - Sponsored by Facebook - Republicans lawmakers rebuke Trump on election MORE (I-Vt.) and Elizabeth Warren Elizabeth WarrenOvernight Defense: Appeals court revives House lawsuit against military funding for border wall | Dems push for limits on transferring military gear to police | Lawmakers ask for IG probe into Pentagon's use of COVID-19 funds On The Money: Half of states deplete funds for Trump's 0 unemployment expansion | EU appealing ruling in Apple tax case | House Democrats include more aid for airlines in coronavirus package Warren, Khanna request IG investigation into Pentagon's use of coronavirus funds MORE (D-Mass.) — have all endorsed AB 5 and pushed legislation to protect workers in the burgeoning industry.

The companies say they do not formally oppose AB 5 — though they did offer drivers extra pay to attend a rally on the state Capitol steps against the bill in July, organized by the California Chamber of Commerce.

Cognizant of the shifting political winds, those companies have proposed an alternative that would guarantee their workers a $21 minimum wage during booked hours — when a passenger is in their car or while they are delivering a meal — and benefits through a worker-directed fund.

Workers would be represented within the company, and they would be able to bargain across their entire industry, a growing priority among progressive labor groups known as sectoral bargaining.

“What we’re focused on is creating a new model that reflects the fact that employment laws were written a long time ago when the gig economy didn’t exist. So let’s realize the laws should be updated to protect what’s great about this type of work, which is the flexibility to work when you want to for how long you want to,” Durbin, the Lyft spokesman, said. “California has the chance to lead the way in updating labor laws that reflect the nature of this type of workforce.”

But Gonzalez, who agreed to several exemptions for various industries, said she is not interested in a third category that straddles the line between employees and independent contractors.

“Just because you hire somebody through an app doesn’t make your industry that different. So if we provided a third category of employment for people who are hired through an app, all of us would be hired through an app,” she said.

Gonzalez, who won her seat in 2012, has built a reputation as one of labor’s leading voices in Sacramento.

“Despite being as progressive as she is, she’s somebody who’s able to cut huge deals and deals that are able to include people of all political stripes,” Rendon said.

The bill targeting app-based workers comes at a moment when some leading entrepreneurs in Silicon Valley are challenging the Democratic Party’s traditional support for labor unions.

Those tech industry titans, who overwhelmingly support Democratic candidates and hold liberal social views, are rethinking the ordinary relationship between workers and employers that defined a pre-gig economy.

But Gonzalez said she would hold her party to the standard it had set for itself over the course of a centurylong alliance with organized labor.

“People who work 30, 40, 50 and 60 hours a week should be able to put food on their table, a house over their head and provide a basic living for their family. That’s a value that the Democratic Party has always stood for,” she said. “I can’t imagine we’re going to give in because tech companies are cool.”