A bill with potentially huge implications for the so-called gig economy is making its way through the California state legislature this summer, laying bare cleavages within the labor movement. Companies like Uber and Lyft are seeking a workaround to the legislation, which would classify their drivers as employees rather than independent contractors, opening the door to a host of employment benefits. Some prominent labor unions, meanwhile, have been in talks with Silicon Valley, even as they voice their commitment to securing workers’ rights. Sponsored by Lorena Gonzalez, a Democratic assemblywoman from San Diego, the bill, known as AB 5, seeks to codify and expand Dynamex Operations West, Inc. v. Superior Court of Los Angeles. The landmark 2018 California Supreme Court decision made it much more difficult for companies to classify workers as independent contractors rather than employees, who have access to workplace protection laws like minimum wage, overtime, unemployment insurance, and the right to join a union. At the center of the debate over AB 5 is its impact on “gig economy” companies like Uber and Lyft, though it would also affect older, more established industries like retail and trucking. There’s a practical reason for California to enact the legislation: The state estimates it loses $7 billion in payroll tax annually due to companies misclassifying employees as independent contractors. Uber and Lyft have been forthright about their desire to come up with some sort of compromise deal, under which they could continue to classify their workers as independent contractors, in exchange for some additional driver benefits. They insist that the flexibility that attracted drivers to their companies in the first place would vanish if all those people were to claim employee status. Gig economy workers who support the legislation view it as a necessary step toward their ability to collectively organize. Both the Service Employees International Union and the Teamsters union have played leading roles in advocating for the legislation. They have publicly said they will fight a watered-down AB 5, but a series of private meetings between labor leaders and tech companies have raised suspicion that the unions are more open to leaving gig workers as independent contractors than they’ve formally let on.

Private meetings between labor leaders and tech companies have raised suspicion that the unions are more open to leaving gig workers as independent contractors than they’ve let on.

Opponents of AB 5 recognize its proposed classification standard could extend well beyond the Golden State and have been lobbying hard —both in California and Washington, D.C. — to stop it. Sen. Bernie Sanders introduced a bill in the U.S. Senate after Dynamex came down to narrow the definition of independent contractors, legislation that is backed by other leading presidential candidates Sens. Kamala Harris and Elizabeth Warren. AB 5 passed the California State Assembly in May, and last week the state’s Senate Labor, Public Employment and Retirement Committee passed the bill, moving it on to the Senate Appropriations Committee for further revisions. It’s unlikely to reach the full Senate floor until late August or September, and both sides are planning to ramp up their advocacy in the coming weeks. The Dynamex decision laid out a three-prong test to separate independent contractors from employees. Under the court ruling, independent contractors are workers who have relative independence from the entity paying their wages, whose work is separate from the type of business the entity is typically engaged in, and who typically do the type of work that the entity hired them to do. Uber and Lyft’s pursuit of a carve-out under AB 5 is part of a larger fight over exactly which industries can claim exemption from that test. A number of occupations already have. The bill originally exempted certain workers who set their own rates like licensed insurance agents, certain health care professionals, and some hairstylists and barbers. Last week, the state Senate labor committee added a host of additional categories for exemption, including freelance writers, grant writers, and private investigators. California Gov. Gavin Newsom, a Democratic ally of both the tech industry and labor unions, has not taken a formal position on AB 5 but said on a podcast last month that he’s “into compromise” and has “been trying to seek it for many, many months.” The Los Angeles Times editorial board recently endorsed some sort of gig economy carve-out, calling AB 5 in its present form “overkill.”

Photo: Johannes Eisele/AFP/Getty Images

Shortly after the Dynamex decision came down, the California Chamber of Commerce formed the I’m Independent Coalition to fight the new worker classification standard. Coalition members include the California Hospital Association, the California Restaurant Association, the California Retailers Association, Handy, Lyft, Uber, and Instacart. The Internet Association, a group that includes Google, Amazon, LinkedIn, and Facebook, is also a member. As Bloomberg reported in August, the business groups mobilized to quietly lobby lawmakers for new legislation or executive action that could neutralize the consequential Dynamex decision. At the same time, Uber and Lyft were gearing up to take their companies public, which meant they faced increased pressure to mitigate their labor costs. Barclays recently estimated that classifying California drivers as employees could cost Uber and Lyft, respectively, $500 million and $290 million annually. In an April Securities and Exchange Commission filing, Uber bluntly wrote that reclassifying its drivers as employees “would require us to fundamentally change our business model, and consequently have an adverse effect on our business and financial condition.” Lyft laid out similar concerns in its March SEC filing, acknowledging that while “we continue to maintain that drivers on our platform are independent contractors in legal and administrative proceedings, our arguments may ultimately be unsuccessful.” Pressure is also mounting as drivers of these ride-hailing services ramp up their own activism, in response to falling pay rates and rising expenses. The tech giants anticipate this to continue. In its SEC filing, Uber wrote that “driver dissatisfaction will generally increase” going forward, as they “aim to reduce Driver incentives” to boost their financial performance.

“They’re giving lip service about protecting part-time workers, but their actual practices are about incentivizing those driving 40+ hours a week.”

Konstantine Anthony is one of those dissatisfied drivers. He’s been working full-time for Uber over the last 4 1/2 years in Los Angeles County, and when he first started out, he said, he used to make almost $26 an hour before expenses. That figure has now fallen to about $22. Anthony has gotten involved with the SEIU-backed Mobile Workers Alliance to support both AB 5 and the right of drivers like him to form a union. He doesn’t buy Uber’s line that they’re trying to protect drivers who wish to work just a few hours a week. “The way they reward you on the app is you get higher and higher bonuses when you drive 60 or 70 hours a week,” Anthony said. “They’re giving lip service about protecting part-time workers, but their actual practices are about incentivizing those driving 40+ hours a week.” In a stunning example of how much pressure the ride-hailing companies are under, Dara Khosrowshahi, Uber’s chief executive, and Logan Green and John Zimmer, the co-founders of Lyft, collectively wrote a June op-ed in the San Francisco Chronicle saying their companies are “ready to do our part for drivers.” While the tech leaders argued against reclassifying drivers as employees, they said they were open to amending existing law to allow independent contractors access to benefits like paid time off, education stipends, and retirement planning, as well as better rates for time spent driving passengers (but not time spent transitioning between passengers). And rather than a union, the tech executives said they’re open to some sort of “driver association” that can advocate for the needs of workers. To bolster their case, Uber and Lyft say that most drivers don’t actually want to be classified as employees, as most just drive occasionally to pick up some extra, flexible income. The companies point to a 2018 statewide survey of California independent contractors, which found that only 7 percent of independent contractors wanted to be classified as employees. That poll, notably, was conducted by EMC Research and sponsored by the Chamber-backed I’m Independent Coalition. It included a sample size of 1,040 respondents, including 387 gig economy workers, a majority of whom had not heard about the Dynamex decision. A 2018 nationwide poll yielded similar results. The Rideshare Guy blog surveyed approximately 1,200 Uber and Lyft drivers and found about 76 percent of respondents said they’d prefer to remain independent contractors, including a majority of full-time drivers. A spokesperson for Lyft said 91 percent of their drivers across the country drive fewer than 20 hours a week, and 76 percent drive less than 10 hours. They said they suspect their California-specific numbers “are the same or very similar” to their national figures. Uber and Lyft warn that the flexibility drivers say they highly value would be lost if they were no longer independent contractors — adding that they’d likely need to limit drivers’ hours and institute shifts. They also say wages could fall further. “Lyft would only need a fraction of the drivers it has now if it moved to an employment model, meaning thousands would lose their opportunity to earn with Lyft entirely,” a company spokesperson added. Uber did not return multiple requests for comment. While it may be true that most drivers who sign up for Uber and Lyft drive just a few hours per week, industry researchers say the full-time drivers account for most of the revenue generated for the companies. Recent data collected by the JPMorgan Chase Institute found that almost 57 percent of transportation platform earnings go to the top 10 percent of earners. “These data and other combine to make me believe that the majority of TNC trips are provided by drivers who rely on TNC earnings for most or all of their income,” transportation policy expert Bruce Schaller told The Intercept over email, using the initials for “transportation network company,” an industry term for ride-booking companies. Anthony, the Uber driver, doesn’t buy the argument that he’d lose his flexible work schedule if he were classified as an employee and calls that a “false narrative.” Treating workers fairly, he argues, doesn’t inherently change the nature of a flexible business. “If Uber and Lyft tried to take that flexibility away, I don’t know any driver who would still work with them,” he said. “And there are a dozen companies that are coming up that will maintain that flexibility and pay workers as employees.” (Via is an example of a ride-sharing company that pays its drivers an hourly wage.)

“If Uber and Lyft tried to take that flexibility away, I don’t know any driver who would still work with them.”

Other pro-AB 5 advocates concede that some things about Uber and Lyft’s business models would likely change, but they say these changes would ultimately be for the better. For example, it’s true that the companies might employ fewer people, since the cost per trip would increase. The upshot is that the companies could also create a more environmentally-friendly business. Having fewer drivers on the road could also increase earnings for workers. The JPMorgan Chase Institute found that the growth in supply of online platform transportation drivers between 2013 and 2017 led earnings to fall by 53 percent. The National Employment Law Project, a union-backed legal advocacy group, also notes plenty of examples of flexible work environments where workers are classified as employees. “Cake decorators, home researchers, nurses, couriers, and restaurant workers have all been found to be employees, despite the fact that they could choose their own schedules,” a recent NELP fact sheet says. “Laws don’t force workers into choosing between having basic workplace protections and having flexibility; companies do.” Uber and Lyft’s “status as employers is really quite clear,” according to David Weil, who led the U.S. Department of Labor’s Wage and Hour Division during the Obama administration. While there are some cases where companies really do have workers operating in an ambiguous space between employees and contractors, he wrote in a recent LA Times op-ed, “Uber and Lyft are not among those close, gray area cases.” Gig economy workers backing AB 5 have been calling both for AB 5’s passage and the path for them to form a union under state law, particularly in light of barriers recently erected by the federal government. In May, the Donald Trump-appointed general counsel at the National Labor Relations Board issued a memo saying Uber drivers are contractors, not employees. The U.S. Department of Labor came to a similar conclusion in April, in an opinion letter saying gig workers are contractors. “It’s really hard to organize under federal labor law, and if federal law says the drivers are not covered then they could be covered under state law,” said Ken Jacobs, chair of the Labor Center at the University of California, Berkeley. “California has established its own protections for agricultural workers, so there does seem to be that precedent.”

Representatives from SEIU and the Teamsters have been meeting with tech companies and lawmakers over the last several months to discuss the proposed legislation. Late last month, the New York Times reported that the AB 5 meetings organized by the tech companies “have created deep rancor within the labor ranks and set unions against one another.” Some workers have raised alarm at the prospect their unions may be selling them out. The unions have defended themselves against critics who are wary of those talks. They emphasize that they were just invited to attend the meetings, did not organize them themselves, and were not there to negotiate any sort of watered-down proposals. As part of their efforts to support gig workers, Bob Schoonover, president of SEIU California, told The Intercept over email that they and other labor leaders have been working “across government, labor, private, and non-profit sectors to open the door for robust conversations and the sharing of ideas and concepts.” He stressed that “these are just ideas and concepts that have been used to collaborate with partners on how we might be able to help workers find the best path forward – they are nothing more and should not be misconstrued as such.” Doug Bloch, the political director for the Teamsters Joint Council 7, which represents 23 locals in Northern California, has also been in meetings with Uber and Lyft to discuss AB 5. He did not return requests for comment. Though labor is taking pains to say they’re not negotiating any sort of compromise, the tech companies have depicted the meetings in different terms. “We’ve been working with lawmakers and labor leaders on a different solution to AB 5 so drivers can continue to control where, when, and how long they drive,” a Lyft spokesperson said. “Industry is at the table with labor and ready to find a path forward to modern protection for independent contractors that preserve their ability to work independently,” added Courtney Jensen, the executive director for California and the Southwest for the trade group TechNet.

He went on to criticize his colleagues in California for “working to cut a backroom deal” that would also exempt app drivers from employee status.

In June, Héctor Figueroa, then president of SEIU 32BJ in New York, co-wrote a New York Daily News op-ed criticizing his state’s labor federation for backing a bill that would let unions collect dues from gig workers without giving those workers full rights as employees. He called the New York proposal “a giveaway to gig companies” and then went on to criticize his colleagues in California for “working to cut a backroom deal” that would also exempt app drivers from employee status. Last week, at age 57, Figueroa unexpectedly died from a heart attack. The day after his death, Caitlin Vega, the legislative director for the California Labor Federation, tweeted about honoring Figueroa’s legacy, and noted that he used his power to stand with vulnerable taxi workers, gig workers, and immigrant workers.

In these beautiful tributes to Hector Figueroa, 2 things stand out. How much he believed in & built true working class power & a member-led union. And how he used his union's power to stand w/ most vulnerable-taxi workers, gig workers, immigrant workers. May we honor this legacy https://t.co/pURoJV5WZS — Caitlin Vega (@unionista27) July 12, 2019

In an interview with The Intercept, California Labor Federation spokesperson Steve Smith explained that representatives from SEIU and Teamsters have met with the tech companies, and then have come back to share with other unions in their federation what they learned and how those conversations went. “SEIU and the Teamsters are not at a point of some imminent deal, the discussions that we’ve had have been primarily about some outlines of the proposals that SEIU and the Teamsters have been discussing with the tech companies,” he said. “We’ve had some honest and open discussions in labor, and I think generally people have been appreciative of the SEIU and the Teamsters for being able to share with other unions what is happening and the progression of those discussions.” Smith said the labor movement is “completely unified” around efforts to pass AB 5, but he suggested that unions may be open to alternative paths for drivers of ride-hailing apps specifically. “AB 5 is much broader than just TNCs, and we understand, as I think those unions do, that AB 5 serves a purpose that’s much bigger than anything that happens with the TNCs,” he said. While there are different ideas on the table, Smith said labor “wants to make sure we’re giving workers the opportunity if they so choose to join a union and that we’re setting a floor — not a ceiling — for the rights they’re entitled to.” He dismissed the idea that there’s a serious divide in the labor movement over this. “I think that’s been overblown to an extent,” he said. “Obviously we’re a big movement, and we have a lot of thoughts and opinions, sometimes strong opinions, but our goal is always to come together as a movement to do what’s best for the largest amount of workers that we can.” Drivers on both sides of the issue are expected to ramp up their advocacy as the bill continues to make its way through the state Senate. In late March, hundreds of Uber and Lyft drivers in Los Angeles went on strike (and turned off their apps) to protest Uber’s recent 25 percent per-mile rate cut. Drivers launched another one-day strike on May 8, timed with Uber’s IPO, and were joined by fellow drivers in Boston, Minneapolis, Philadelphia, D.C., San Diego, San Francisco, and Chicago.

“If they say they’re willing to give us a living wage, then do it now.”