It doesn’t look good for gig brands like Uber. House Democrats recently re-introduced the Protecting the Right to Organize (PRO) Act. House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer were among the sponsors. The labor law did not pass in the last Congress. But things have changed since. Democrats control the House, and President Biden is in favor of the act. The only thing that remains to be seen is whether it will pass through the divided Senate.
The legislation proposes significant changes to existing labor laws for protecting worker rights. And one aspect is likely to affect the gig economy – the classification of independent contractors. With over a million drivers in the US, Uber will be one of the hardest hit.
Classification Of Independent Contractors
The part of the law in question is derived from California’s Assembly Bill 5 (AB 5). AB 5 states that most workers are employees and not independent contractors. The onus for proving otherwise is on the employer and must meet the three criteria of the “ABC Test”:
- The worker is free from the company’s control.
- The worker performs work that is not related to the company’s core business.
- The company has hired the worker for a skill for which others regularly engage them.
Failure to prove any of the above makes the worker an employee. This classification means they are eligible for benefits like minimum wage, paid leave, insurance, etc.
Impact On The Gig Economy
The labor law makes it difficult to classify workers as independent contractors. While designed to prevent exploitation due to employee misclassification, there might be unintended consequences. The AB 5 law was not an exception, with amendments to add exceptions for certain professions.
With the second criteria, drivers for companies like Uber will become employees. Uber drivers account for almost 10% of the 10.6 million independent contractors in the US. Barclays estimates that Uber will have to shell out $3,625 more per reclassified driver. This price tag makes engaging drivers as employees very costly.
With Uber yet to make a profit, they would likely let go of most drivers. The company could also shut down. That is why it lobbied so hard to get Proposition 22 passed. Drivers got extra protections like minimum wage and mileage reimbursement. But they did not become employees.
Another option would be to pass on the cost to customers. For example, Lyft raised prices in Seattle recently in the aftermath of Props 22. But this works against the model they started with – offering cheap rides.
The third rule affects those who use gigs to earn extra money on the side. And as employees, workers could lose the flexibility that attracted them to the gig economy in the first place.
Conclusion
While well-intentioned, such sweeping legislation can impact both employers and gig workers. Some workers might benefit if hired as employees. But outlawing side hustles deprives others of the ability to eke out a living. If companies like Uber go under, millions of drivers have to fend for themselves. The ideal solution would be to protect gig workers while enabling them to work on their terms.
