Carte Blanche: California Labor Law Does More Harm Than Good

AP Photo/Rich Pedroncelli

The coronavirus has placed a strain on businesses and welfare programs alike, and I believe the American gig economy is a major sector for observation to better understand what approaches might work in the future. A gig economy occurs when businesses tend to hire part-time employees or independent contractors for temporary and more flexible jobs.

We know the most prominent members of the American gig economy as rideshare businesses (Uber or Lyft), delivery (DoorDash) and lodging businesses (Airbnb), and these businesses account for approximately 1.6% of the American workforce. However, the gig economy includes businesses outside of tech that is centered on a “non-traditional arrangement” and they could account for nearly a third of the employed labor force.

Of course, with flexibility and temporary “gigs” comes a lack of worker benefits and protections that have been echoed through the masses and caused states and unions to criticize businesses for their practice. Most specifically, California’s Assembly Bill 5 (AB 5), which came into effect on January 1, 2020, was legislation that came as a result of the case Dynamex vs. The Superior Court of Los Angeles. The case discussed the issue of independent workers/contractors and restricted the definition of independent workers to the “ABC” test.

As a result, California narrowed its definition of independent workers, and, in turn, they passed Assembly Bill 5 which requires businesses to provide the same benefits and protections to gig workers as if they were full-time employees. While this seems like a win for workers’ rights and a stand against large tech companies, this is another case of well-intended legislation that had negative unforeseen consequences.

As we all may have noticed, the novel coronavirus has seriously affected the US economy as the Department of Labor’s news release from May 14th revealed the insured unemployment rate was estimated at around 15.7 percent. This would mean that the jobless claims are at least 50% higher than the unemployment rate of the Great Recession.

While the Federal government and the Federal reserve scramble to pass legislation and borrow enough money to fund relief programs, food prices have steadily begun to rise. According to US Today, supply chain disruptions from the coronavirus in the form of processing plant closures and reduced restaurant demand have forced euthanizations. 

The CARES Act has provided a cushion for citizens in the form of 600/week insured unemployment as well as stimulus checks, but not everyone is receiving the stimulus promptly nor does everyone qualify for the relief. In summation, food is becoming more expensive, and people are unable to work like they could before the shutdowns. 

According to a story by Johana Bhuiyan, a contributor at the LA Times, companies such as Lyft and Uber have stopped using workers in California after AB 5’s passage, and the effects of the coronavirus are compounding these effects. While a libertarian will roll their eyes at the perpetuation of the “well-intentioned” fiscal government policy hurting laborers and consumers effect”, supporters of AB 5 have credible concerns.

Independent workers would be unable to qualify for the unemployment benefits that have been secured for eligible citizens, and Pro-AB 5 individuals believe protecting those rights are paramount to helping individuals acquire social security, benefits, etc. However, this paternalistic approach to policy-making stifles the very thing that enables society to overcome new challenges, say it with me: innovation.

Bhuiyan’s article outlines the struggles of multiple individuals, ranging from Uber drivers to freelance writers, that are unable to find work through flexible contracting because of the strict standards California has placed on businesses. The article mentions how a certain freelance writer struggles to find work because they had already reached their 35-article-a-year cap before they are legally considered a full-time employee. 

Furthermore, the legislation does not even effectively allow gig workers to financially plan for the future. According to a Forbes article by Adam Bergman, President of IRA Financial Group, expertly outlines that AB 5 places gig workers under legal classifications that prohibit them from freely investing in a SEP IRA.

As an independent contractor, individuals are technically self-employed and can, therefore, invest as much money as they please under this classification, however, AB 5 reclassifies gig workers as employees, restricting their ability to invest in themselves.

The government trying to meddle in the gig economy has restricted the freedom and flexibility of gig workers, and they have impeded struggling individuals from being able to earn much-needed income. Remote gig worker jobs have sharply increased in demand, but AB 5 restricts the ability for businesses to feasibly hire someone in a time that is as uncertain as a pandemic.

Let me clarify, most Libertarians are not opposed to collective action as long as individuals freely make that decision themselves. However, legislators' good-faith protections have prevented collective bargainers from negotiating terms with the businesses that they wish to be employed by. Of course the workers will not get everything they want, but unimpeded negotiations can offer the greatest opportunity to receive what is most important in their own eyes. 

As an American citizen and an individual whose father is himself an independent contractor, I always hope that fellow individuals will not be taken advantage of by employers, but the volatility that accompanies a “gig” is a trade-off for flexibility and self-governance that many people desire. 

Just as individuals must consider the trade-offs for whatever financial avenue they wish to pursue, the government must take in to better consider what the trade-offs for legislation might end up being. Maybe they did consider it and realized that their bill was a better way to siphon off tax dollars from an emergent profession that had found a way to operate efficiently despite government regulations.

Whatever the case, let AB 5 be a reminder to all that allowing the government to intervene on any problem that citizens may encounter does not always, if ever, truly render the result most of us would hope for. Government, despite having the interest to please their constituents in exchange for votes, has another interest that it will always seek to serve: its own.

The economic landscape of the world is changing, technology is the next industrial revolution, and our past career protections are going to be threatened by the innovation of society itself. In order to adapt, we must not be afraid and hide behind government protections, but we must lean into innovation.