Independent Contractors Fight for Employee Benefits

Independent contractors in California are fighting attempts by Lyft and Uber to have themselves exempted from new pending labor legislation that would require such companies to provide employee benefits to workers in the gig economy.

At the heart of this controversy is Assembly Bill 5 (AB5), which, if signed into law, would make those who work on a 1099 basis eligible for such things as paid vacation, health insurance, and retirement benefits.

About the Gig Economy and Independent Contractors

The term “gig economy” (derived from the jargon of professional musicians, a contraction for the word “engagement”) refers to a labor market in which workers have short-term contracts as freelancers instead of permanent staff positions. It is similar to running one’s own small business.

Such arrangements have advantages and disadvantages; many of those who work in the gig economy enjoy freedom from rigid scheduling, being able to set their own work hours. They are also responsible for paying their own taxes; instead of receiving a W2 form and being subject to withholding, gig economy workers are usually given Form 1099, on which those who hire them report their income to the IRS.

With careful planning, a gig economy worker can deduct many expenses that significantly reduce their tax liability. On the other hand, there is little job security: except for a fortunate few, most independent contractors must continually search out work opportunities, with no guarantees of when the next job will come along.

Primarily, however, freelance workers usually do not get the kind of benefits that regular W2 employees enjoy – including protections such as disability and unemployment insurance.

California Attempts to Expand Worker Protections to Freelancers

As companies seek to save on labor costs, the “gig economy” model is becoming more and more prevalent. The recently proposed addition to the state’s Labor Code would expand the definition of “employee” to include many freelance workers who did not previously qualify for job benefits, providing “tests” that would determine which workers would be affected by the new law.

Not all companies who hire freelancers are pleased with the idea. Among these are Uber and Lyft, alternative cab companies in which freelance drivers use their own vehicles to provide transportation services. These companies have petitioned to be exempted from the new legislation; in return, they have said the would consider extending employee benefits to their independent contractors.

The Bone of Contention

In a guest editorial appearing in the San Francisco Chronicle, the CEOs of both Uber and Lyft focus on the idea that most of their contractors enjoy the freedom of flexible scheduling as well as the claim that most of them are not full time, but rather are supplementing their income from other jobs. On the other hand, both companies have acknowledged that some of their drivers may not even earn the state minimum wage after expenses.

Under the ruling in Dynamex v. Superior Court, reported by Risk & Insurance, companies that hire independent contractors must prove that they do not exert direct control over their workers if they wish to classify workers as exempt. They must also demonstrate that said duties are outside the core of the company’s business and that the workers are “customarily engaged in an independently established trade.” AB5 would codify this decision in the California Labor Code.

Workers who have been misclassified as contractors when they really qualify as employees may be able to get the benefits they’re entitled to, but it often requires hiring a wage and hour attorney and taking the business they work for to court. Currently, Uber is facing class action litigation over the way in which it classifies its workers as independent contractors.

Join a Free Independent Contractor Class Action Lawsuit Investigation

Even if you are classified as an independent contractor, you may be entitled to minimum wage, overtime pay, reimbursement for expenses, and meal and rest breaks, among other employee benefits.

Learn More

This article is not legal advice. It is presented 
for informational purposes only.