A new Californian law passed overnight requiring gig economy companies to treat their workers as employees rather than contractors. The decision is expected to be felt around the US and could rewrite the rules of the gig economy when the law comes into force in 2020.

The California bill, known as Assembly Bill 5, means workers must be designated as employees if a company exerts control over how they perform their tasks or if their work is part of a company’s regular business, meaning many platform companies like Uber, Lyft, and DoorDash may have to provide minimum wages, benefits and scheduled rosters for the first time.

Some of the largest US platform companies have challenged the ruling, are seeking exemptions, and threatening a near $US100 million public campaign against the laws.

Uber says it will not automatically reclassify workers next year, despite the law coming into effect, and will litigate worker classification.

The California law is at odds with the latest ruling in Australia. In June the Fair Work Ombudsman ruled local Uber drivers to be independent contractors, not employees, in part because there was no “obligation for an employee to perform work when it is demanded by the employer”. 

The ruling allowed Uber Australia and other platform companies to continue not paying their Australian workers a minimum wage, annual leave, sick leave or any benefits that employees receive. Research from the Australia Institute last year found the average hourly wage for an Australian Uber Driver after expenses but before tax to be $14.62 per hour on Average, well below the national minimum wage of $19.49 which doesn’t include casual loading, a minimum 25 per cent more.

Update: Uber commissioned research claims the hourly rate for its “driver partners” is $21.00, although the number is based only on Sydney drivers who drive more than 50 hours per week. 

California pushback

Ride hailing giants Uber and Lyft are reportedly still trying to negotiate an exemption from the California bill with lawmakers but have also warned that, if unsuccessful, they will challenge the law via a ballot initiative – a public vote on the laws. The two companies, along with food delivery company DoorDash, have pledged $US90 million for a ballot initiative campaign next year.

Platform companies like Uber have always classified drivers as independent contractors, a move that allows the company to not pay minimum wages or offer additional benefits. The companies argue this gives drivers more flexibility to work when they want and fosters more innovation, which would be threatened by the new law.

When the new laws looked likely in June, Uber and Lyft offered a compromise: “a system of worker-determined benefits — from paid time off to retirement planning to lifelong learning”. The new laws, however, appear to establish many more benefits and protections, and would affect an estimated one million Californian workers.

Uber says in the negotiation they were “not arguing for the status quo” and that Californian lawmakers are “missing a real opportunity” by not accepting its proposed reforms.

“Our proposal avoids the potential harm of forcing drivers to be employees, whether or not they want to—and the vast majority tell us they don’t want to be,” said Tony West, Uber’s chief legal officer, in response to the new law.

“And it would create legal certainty around the classification status of drivers. So we’re disappointed that we were not able to reach a compromise.

West said Uber has already correctly identified workers as independent contractors and will not reclassify them next year despite the new law.

“We expect we will continue to respond to claims of misclassification in arbitration and in court as necessary, just as we do now. But we will also continue to advocate for the independence and choice that drivers tell us again and again in surveys, polls, focus groups, and personal conversations that they value most.”

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