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In the growing era of the gig economy, a new battle is being fought and both sides seem determined to win. Why not? At stake are not only big dollars, but also the potential upheaval of the basic business models for some companies, and for the gig workers, the guarantee of strengthened worker protections.

At the core of the issue is whether gig workers should be classified as contractors or as employees.

Gig Workers vs. Companies

Large companies like Uber and Lyft, armed with an army of well-financed lobbyist, are working the floors of State Capitols across the country determined to ensure their drivers remain independent contractors. More than just drivers, companies like GrubHub, Handy, Lyft, Postmates, Thumbtack, YourMechanic, and TaskRabbit all have an interest at stake in this issue.

Not so well financed organizations of gig workers and organizations like the National Employment Law Project, a nonprofit worker-advocacy group, often joined by unions, all of whom are fighting to protect the rights of gig workers and to make sure they’re fairly compensated?

When large companies like Uber and Lyft are able to classify workers as contractors, they don’t have to contribute to unemployment insurance or workers’ compensation, or heed minimum-wage and overtime laws. Industry officials estimate that a work force of employees costs companies 20% to 30% more than a work force of contractors — a sum worth many hundreds of millions of dollars per year to Uber.

What makes a worker a contractor?

Different state and federal laws define employment somewhat differently, but most focus on factors like whether managers exert significant control over workers, and whether the work is central to a company’s business.

Uber, Lyft and Handy argue that their workers should be considered contractors because the workers decide when, where and how long they work. But skeptics argue that the companies exert control through ratings that elicit certain behavior, like treating passengers courteously, and by barring drivers who cancel too many rides. Uber and Lyft also determine pay rates for drivers, something independent contractors typically decide.

In recent years, courts and state and federal agencies have disagreed on this question. But there’s little debate that if courts and regulators classified large numbers of gig workers as employees, the move would be highly disruptive to companies that depend on them. 

What gig workers want are benefits, such as paid leave, health insurance, civil rights protections, and the ability to organize.

State-by-State

About 25 states have enacted such provisions, known as carve-outs that have maintained ride-hailing drivers’ classification as independent contractors. In other states, Uber and Lyft worked with a broader group of companies to have most gig workers who are dispatched through digital platforms, not just drivers, classified as contractors.

While company lobbyists have had a recent stream of legislatives successes, they’ve come up short in a few states including Colorado, Georgia, North Carolina and California.

California Passes AB5

Earlier this month, California Governor Gavin Newsom signed into law AB5, which was supposed to move toward classifying more gig workers as employees, but it doesn’t appear clear yet whether the bill will do much to move the issue forward.

All the bill does is to require companies to use a three-part “ABC test” to determine if a worker is an employee or an independent contractor, but the problem with the bill is that the A-B-C requirements are undefined, subjective, and therefore subject to varying interpretations.

The ABC test has been the law in Massachusetts for over a decade, with no discernible impact on the worker classification habits of gig economy platform companies.

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