California’s Landmark Gig Work Policies

Whether it’s a side hustle to make ends meet or a full-time source of income, gig work is here to stay. More than a quarter of workers in the United States work a gig economy job for their primary or supplementary income. Advancements in technology continue to fundamentally change the options employers have for connecting with workers. While the most familiar type of gig economy work might be via platforms like Uber or Postmates, platform workers represent roughly less than 1 percent of the larger U.S. workforce. The size and scope of the gig economy, including measures of how many people participate in gig work, can vary dramatically depending on the types of work arrangements included in the research, surveys, and data. Part of that variability occurs because federal and state policymakers and labor experts still disagree on a clear and consistent way to identify and measure independent and contingent work.

It is clear that gig workers represent a growing portion of the workforce and U.S. labor policies, which are set up largely for traditional employment models, have yet to catch up to support gig workers. Recent legislation passed in California clarifies the legal definitions affecting gig workers, and could have an impact that extends to how other states—or even federal laws—classify workers in the gig economy. As more companies rely on gig workers rather than traditional employees in part to lower labor costs, policymakers and experts rush to classify workers and adapt policies, benefits, and protections to meet the growing and changing needs of independent contractors.

Legal, business, and policy experts often use the term “gig economy” interchangeably with other similar terms like independent work, shared economy, freelancers, and on-demand platform workers. Workers flow in and out of this type of employment frequently, further complicating the process of categorizing gig workers. The core of the legal worker classification issue in the gig economy centers on the difference between employees and independent contractors.

Gig Economy: A catch-all term that refers to the companies, platforms, users, and workers participating in independent gig work—including contractors, consultants, temporary, and other contingent workers.

Independent Contractor: A legal classification of workers who, in general, control their own workload, hours, and supply their own equipment. These workers are not considered employees, and not entitled to workplace benefits and protections that come with traditional employment.

Employee: A traditional employee is a regular common-law worker who in general receives a set hourly or annual salary for their work for an organization, and is entitled to benefits and legal protections.

In traditional work arrangements, employers assume responsibility for ensuring employees have access to certain benefits, stability, and legal protections. Gig work arrangements, on the other hand, place more responsibilities (and costs) on the individual rather than the company.

Although zoomed out, some data suggests independent workers are happier in contract work than a traditional job, breakdowns by wage level and primary versus supplementary income reveal more nuance. Those who participate in gig work for supplemental income generally do so to manage unexpected expenses and stabilize income volatility. Those who rely on the gig economy for all or most of their income participate in contract work because they need to in order to earn a living, and many would rather work a traditional job. They also report higher dissatisfaction rates with gig work.

Because gig work in general represents a way of working rather than an industry, every demographic of gig workers has access to gig work and can be found spread across income streams in the gig workforce. However, breaking out the demographic data shows that African American and Hispanic workers were more likely to work in lower-wage temp, on-call, and contracted company work, while white workers occupied generally higher-wage and more flexible consulting and freelance work.

Some researchers suggest creating a third class of worker—the “independent worker”—to clarify the categorical obscurities digital platform work like Uber, Lyft, or Handy create. Unlike an independent contractor, an independent worker would qualify for some employee benefits like civil rights protections and collective bargaining, but not qualify for wage protection and insurance benefits. Opponents to the third classification model argue it would make workers more vulnerable by allowing companies to exploit workers and deny them benefits that employees could receive, like social security, health insurance, and protection under labor laws.

The Dynamex Decision

In the 2018 case of Dynamex v. Superior Court of Los Angeles, two delivery drivers sued transportation company Dynamex, claiming they were misclassified as independent contractors and instead should be considered employees and have access to the protections associated with that correction. The court applied a classification test known as the ABC test, and determined that the delivery drivers were in fact improperly classified as independent contractors and should be employees.

Under the ABC Test, a worker is considered a traditional employee unless the employer proves:

1. The company has no control over the tasks the person does;
2. The worker is hired to perform work outside of the scope of the hiring organization’s main business;
3. The worker engages in similar work or business independent of the employer;

This case established precedent for a stricter classification of workers within the state of California to determine whether or not a worker should be classified as an employee and entitled to the benefits and protections associated with that legal classification.

California Assembly Bill 5

After the Dynamex decision set the legal precedent, California passed AB-5 in 2019 which clarified the definition and scope of worker legal classifications by formalizing the ABC worker classification test for the purpose of unemployment insurance. AB-5 had the potential to reclassify as many as 2 million independent contractors as employees, ensuring that these workers received the benefits and protections entitled to them due to the nature of their work.

Although the legislation passed, the bill was controversial among business communities because it exempts some industries (like fishing, some types of trucking, and some white-collar professions), but not others, like app-based platforms Uber and Lyft which filed lawsuits against the state of California claiming AB-5 was expensive for business and the exemptions were unfair. Businesses reacted by claiming this legislation would increase their costs and that they could not afford to keep their workers if they were to be correctly classified. Since so many people rely on gig work for their main or extra income, or to access cheaper services, these business-centered arguments began to sway Californians and impacted the popularity of the legislation and paved the way for counter-proposals.

California Proposition 22, App-Based Drivers as Contractors and Labor Policies Initiative

In response to AB-5, in 2020 gig and platform-based corporations including Uber, Lyft, DoorDash, and Instacart spent $200 million on efforts to pass Proposition 22, a policy aimed at allowing app-based platforms to continue to classify ride-hail and delivery drivers as independent contractors. The proposition exempts app-based delivery drivers from AB-5.

Proposition 22 limits the types of workers who can access the more robust suite of benefits and protections offered to traditional employees, but does provide some benefits like a minimum earnings guarantee for active driving time. Advocates for Proposition 22 say that their businesses would not be able to afford reclassifying their workers as employees, the costs would be passed onto customers, and their workers would lose flexibility and control of their hours. However, it is worth noting that flexibility and schedule control are benefits that businesses could offer workers regardless of employment status.

Those against Proposition 22 are weary of the efforts app-based platforms made to control the narrative and pressure their workers into supporting the legislation. Worker advocates argue that workers may have been swayed to pass the proposition against their own best interests, since the proposition eliminates access to many of the benefits and protections workers would have received if they had been classified as employees under AB-5. This policy raises questions about the extent to which corporations should be involved in designing and passing regulations. Proposition 22 was also written in a way that makes it difficult to overturn, and could set a precedent for how other states or federal policies structure and define worker classification.

Gig workers may have the flexibility to determine their hours and schedule, but this often exists as an ‘either or’ with employer contributions to benefits like health insurance, social security, and Medicare. Gig workers generally do not have access to employer-provided paid time off, or unemployment insurance. In addition, workplace protections like the Fair Labor Standards Act, which guarantee employees a minimum wage and overtime, do not apply to independent contractors. While higher-paid workers might benefit from the flexible work arrangements and be able to afford these added costs, low-income workers often can not. These workers, many of whom rely on gig work, face barriers to career advancement and the policy protections meant to provide workers with greater economic stability and security.

The nature of work, how it is structured, and what employers and the public sector owe workers, seems to amount to a matter of policy choices. In this moment where policies continue to arise to meet worker’s needs, we’ve reached a window of opportunity for workplace stakeholders to come together and design policy that centers worker power. As technology simultaneously and fundamentally changes what work looks like, it’s important for policy to balance the field to support workers. As policymakers look to California for examples of worker classifications aligned to an evolving nature of work they must also endeavor to ensure these policies are equitable, providing gig workers with access to stable, better quality jobs. Investing in workers means passing policies that create jobs with livable wages, fair labor protections, and opportunities for workers to influence the policies that affect them.

This policy primer on California gig work was made possible thanks to editorial contributions from Maria Elkin and Autumn McDonald. The author also wishes to thank Lumina Foundation and the Center on Education & Labor at New America team for early thought partnership on larger gig work issues. Thanks to Joe Wilkes, LuLin McArthur and the New America communications team for publication support.