Will New CA Law Mean Workers Compensation for Rideshare & Delivery Drivers?
A new bill, AB 5, was signed into law by Gov. Gavin Newsom last month. The purpose of the bill was to ensure that “gig economy” workers, such as rideshare drivers, receive minimum wage, workers compensation and other benefits. Attorneys at Cantrell Green, a prominent Orange County law firm, have studied the ramifications of AB 5 as it relates to proper classification of gig economy workers, and how that classification may affect their ability to qualify for workers compensation in the event of injury.
The term “gig economy” refers to a working environment in which temporary contracts, short-term engagements and independent contracting is the norm. Other common terms used to describe gig economy are “freelancer economy,” “sharing economy,” or “independent workforce.”
The gig economy is distinct from traditional employment where jobs are more permanent in nature. Rather, these jobs feature one-off tasks or individual shift assignments, although the term may also refer to longer-term freelance arrangements and independent contracting assignments.
Classifying of Gig Economy Workers
In the freelance economy, workers have traditionally operated as independent contractors, meaning the client pays them a specified amount for services rendered. Since independent contractors are not technically “employees,” they would pay their own taxes and are not eligible for benefits available to regular employees, such as access to group health insurance, retirement accounts, and, notably, workers compensation benefits.
For the last 30 years, a multi-factor test (the “Borello Test”) was used to determine whether or not a worker was properly classified as an independent contractor. The Borello test featured 11 factors to determine the proper classification of a worker.
AB 5, which takes effect in January, replaces the Borello Test with a three-part test to determine whether or not a worker is correctly classified as an independent contractor. These factors include the following.
- The worker must be free of the company’s control.
- The worker must do work that is outside the normal course of the company’s business; and
- The worker must be established in a trade similar to the work he or she performs.
The Effect of AB 5 on Workers Compensation
Whether a “gig” worker is classified as an employee or independent contractor would make a significant difference if that worker was injured on the job. If, for example, an Uber, Lyft, DoorDash, GrubHub or other worker is determined to be an employee as opposed to an independent contractor, and is involved in an accident in the course of employment, that worker is entitled to workers compensation coverage for the on-the-job injuries. Conversely, if the worker was properly classified as an independent contractor, workers compensation benefits would not be available to him or her.
Economic Consequences of AB 5
AB 5 provided exemptions for several classifications of workers, such as doctors, lawyers, hair stylists, fisherman, estheticians, insurance brokers and more. But many classifications of workers are not exempt from the new law, and those include rideshare and delivery service workers, truck drivers, healthcare workers, musicians and even exotic dancers, all of whom routinely do contract work.
Rideshare companies such as Uber and Lyft, as well as delivery companies such as Grubhub, have developed a business model that relies upon paying their workers as independent contractors, thus avoiding the necessity of paying the enormous costs associated with benefits, including workers compensation and unemployment insurance.
Both Uber and Lyft spent millions of dollars to fight the law. Adrian Durbin, a Lyft spokesman, stated that AB5 would have a significant negative impact on drivers because it would limit their working hours and lower their earning opportunities. He further claimed that customers should be prepared for rates to increase, and in some areas, service would no longer be available.
Workers Compensation Is Just One Affected Factor
Workers Compensation attorneys also note that the new law opens up other potential liabilities and responsibilities for employers of gig workers, such as rideshare and delivery drivers.
Workers compensation and benefits are not the only changes that will impact a company’s bottom line. Since the independent contractors are now considered employees, these employees are now covered by wage laws, insurance requirements, mandatory sick time, reimbursement for expenses and losses, etc. All of these pose a considerable cost to the employer, as you can imagine.
For example, if a rideshare driver is considered an employee of a company, if he or she is involved in an accident, the company now assumes a heightened level of liability for their actions.
The Bottom Line for AB5 and Workers Compensation
With Governor Newsom’s signature, the battle over AB 5 is concluded, at least for the present. However, the determination of who is and who is not an employee is a war that is far from over.
Lobbyists and worker advocacy groups have lined up on both sides of the issue, and are pledging to remain active in the upcoming 2020 legislative session. We can expect a general push in legislation designed to expand worker rights under AB 5 and across the nation on the one hand, and also a concerted campaign from the gig economy to delineate further exemptions to AB 5. Additionally, a “clean up” bill is in the works to address other industries that sought but did not get exemptions under AB 5.
In short, AB 5 is anything but settled, even though the ink is dry on the bill. We can expect the war over what constitutes an independent contractor to continue well into the future. Our workers compensation lawyers will stay abreast of the impact of AB 5 on workers compensation claims and the rights of injured workers, and will report on it here as the situation develops
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