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Uber, Lyft & Other Companies Should Be Able To Allow Contractors To Avoid Becoming Employees

I have no vested interest in the success of Uber, Lyft or any other company that is being forced to turn freelancers and contractors into employees, but I do worry about the contractors who may be forced out of their freelance gigs as a California court recently ruled.

This is happening in California because of Assembly Bill 5. The law, which went into effect in January, requires companies to classify many workers as employees unless they pass the so-called “ABC Test,” as outlined in a FAQ from the California Labor and Workforce Development Agency.

  • A: The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
  • B: The worker performs work that is outside the usual course of the hiring entity’s business; and
  • C: The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

The key provision is B, because it effects anyone who’s job is part of the company’s course of business. In other words, if you’re a driver for a transportation company — even if you pass the A&C test, you have to be an employee because driving is part of the company’s business.

There are some exceptions, including doctors, dentists, psychologists, insurance agents, stockbrokers, lawyers, accountants, engineers, and real estate agents. Writers such as myself are allowed to submit up to 35 pieces a year as freelancers, but if you do more, you’re not exempt. I write a weekly column for the Mercury News so I’m covered by the law. To get around it, I had to form a Limited Liability Corporation (LLC) which cost hundreds of dollars to establish and requires I pay an $800 annual fee to the State of California in addition to the usual income taxes that freelancers pay. That fee and the cost of establishing the LLC comes out of my bottom line.

I agree with Uber CEO Dara Khosrowshahi  who wrote an op-ed for the New York Times titled, “I Am the C.E.O. of Uber. Gig Workers Deserve Better.”

Khosrowshahi does have a vested interest in this issue (he recently told MSNBC that Uber might have to temporally shut down in California if the court isn’t overruled). However, just because he stands to lose from the ruling doesn’t mean he’s wrong.

Give workers a choice

Of course some Uber and Lyft drivers have complained that they’re being exploited and have asked to be reclassified as employees. But there are others who prefer being freelancers, just as I am happy to be a freelance journalist instead of an employee. For some it’s the freedom to chose their own hours or hold other jobs which might not be practical if they were forced to be employees. For others it may wind up costing them more money or causing them to lose tax write-offs associated with being your own business.

I spent 19 years working as a freelancer for a company only to be reclassified as a part-time employee. That not only resulted in taxes being withheld from my pay (which was OK because I would have had to pay them anyway) but also prevented me from writing off certain expenses associated with that work.

In his op-ed Khosrowshahi  argued that Uber and other companies should pay benefits for its contractors, which could alleviate some of the problems, especially if the benefits could be flexible such as giving people cash instead of medical insurance if they are covered by a spouse or a parent or Medicare.

Another option would be to give workers a choice whether to be employees or contractors. It would have to be a real choice with strong sanctions against companies who pressure workers to make one choice or another but if it were up to the workers, some would opt for employee status while others might prefer to remain freelancers.

Equal pay

Having said this, I am not in favor of companies being able to pay contractors less than employees for the same work or deny them benefits as if often the case. We do need provisions to protect gig economy workers, but these provisions don’t have to include canceling the gig economy.

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