California may have made the first step to overhaul the "gig economy" — but Uber and Lyft drivers are far from the only winners.
California Gov. Gavin Newsom signed a bill that makes it much harder for companies headquartered in the state to classify their workforce as independent contractors. The law, signed on September 18, will go into affect January 1, 2020.
Contract workers like janitors, hotel workers, truck drivers, and landscape workers have long suffered under the current independent contractor employment model, which leaves them with few workplace safety protections and low-wages. Now, California's law will help workers at the bottom of employment ladder.
Business Insider spoke with 3 labor experts on how the new bill could overhaul contract work outside of app-based drivers.
Here's how low-wage workers win under California's new bill:
California's bill makes it much harder for companies to call workers "independent contractors."
California's governor just signed Assembly Bill 5, which classifies independent contractors as employees.
It has implications for all sorts of contract workers, like the sub contractors who work for temp agencies but perform essential work for major companies and the independent contractors are those who perform essential work for major companies but remain self-employed.
The rule change would ensure if a company directly controls the actions of a worker, they are an employee and allowed access to minimum wage or overtime pay. Currently, companies that use independent contractors don't offer them benefits like healthcare or overtime pay.
While "gig economy" workers might be the most visible types of independent contractors, this is just a recent iteration of a phenomenon that's affected US labor for decades, said Laura Padin, a senior staff attorney at the National Employment Law Project, said.
"More recently these online companies have joined this trend but we see this 'gig economy' or online platforms as the online iteration of this phenomenon of calling what should be employees 'independent contractors,'" Padin told Business Insider said.
Besides delivery drivers, truckers, maids, janitors, landscape workers, and more suffer from the independent contract model.
The reason for the increase in independent contract work is that it saves companies 30% on labor costs, according to Padin. Many companies, in turn, strip their workers of their employee status and instead "misclassify" them as independent contractors without changing their job description, said Michael Oswalt, associate law professor at Northern Illinois University.
For instance, in the recent court case Vazquez v. Jan-Pro, courts found California janitors that worked for Jan-Pro were forced to pay a franchise fee to work for the agency due to their classification of independent contractors. The state's supreme court said the agency misclassified them, as many of them could not set their own wages and had their hours controlled by the agency.
"This was a way for a multi-million dollar company to create fake franchises to exempt them from employment laws," Oswalt said. "The abuse of the independent contractor status operates as a 'get-out-of-employment-law' free card where companies see it as an opportunity to be exempted from laws."
Other "fake franchise" companies that misclassify workers as independent contractors include those in trucking, hospitality, maid service, home health care, landscapers, and more, said Padin.
Many of these janitors, maids, and other contractors are people of color earning low-wages.
Many Uber and Lyft drivers average $828 a month, as they only drive part-time throughout the month, according to a 2018 report by the JP Morgan Chase Institute. For those that do drive full-time, many of them have reported going on food stamps to eat.
But drivers are not the only ones earning poor wages.
In the past, big firms like Xerox employed their janitors and warehouse employees directly, said David Weil, author of " The Fissured Workplace: Why Work Became So Bad for So Many and What Can Be Done to Improve It" and former Wage and Hour Administrator for the Obama administration.
Since these firms paid high salaries for their engineers, it subsequently raised wages for those at the bottom of the totem pole, since it's easier to communicate how much you get paid when everyone is housed under the same employer.
Now, janitors make just $12 an hour, according to the Bureau of Labor Statistics.
"A labor market and economy that's more and more made up of these independent contractors is all the more one where you're gonna have lower pay, stagnating wages and growing earning inequality," Weil said. "All the things we're grappling with right now."
Padin also said people of color disporporitonately work trucking, janitorial, home care, landscaper, and delivery jobs — and many are currently independent contractors. Ensuring these low-paying workers get more money and benefits might level the playing field for these workers.
"All these tactics disproportionately hurt people of color because they are workers in this industry," Padin said. "Trucking, janitorial, delivery, landscaping — all of these are low-wage industries overrepresented by people of color predominantly doing the work."
Many of these low-wage workers would get greater protections under the new California law.
Independent contractors, because they aren't "employees," don't qualify for government protections like federal minimum wage, unemployment insurance, or discrimination protection. If they suffer from an injury that's traditionally covered by employers through the Occupational Safety and Health Administration, independent contractors must pay for it themselves.
"One of the biggest problems of misclassifying workers as independent contractors is the shifting of risk onto the workforce," Weil said.
AB5 would give independent contractors health and safety protection under federal law, Padin said. They will recieve other federal benefits including unemployment insurance, workers compensation, and overtime.
Companies may also pay workers more due to having to comply with minimum wage regulations.
Uber and Lyft aren't the only giant tech companies routinely using contract workers.
Outside of Uber and Lyft, companies like Apple, Amazon, Facebook and more routinely hire subcontact workers. These are not independent contractors, but are employed by temp agencies.
Google's contract workforce was so large it outnumbered direct employees for the first time ever last year.
Michael Oswalt, the Northern Illinois University professor, said that contracting out workers is a common practice, oftentimes without the public realizing contract workers aren't hired by the major company.
"Through fissuring, employers want to give the illusion of a uniform, stable employment relationship without actually having to pay for it," Oswalt said. "The phenomenon of contracting out and but then ensuring the entity you contracted to maintains the brand that the larger entity is interested in absolutely widespread."
Many other tech contract workers also suffer from workplace safety violations.
Since temp workers are not employed by major companies even if they perform essential work for them, they represent another way corporations shed responsibility for the people who do their job.
In 2009, Hershey contracted college students to package chocolate in one of its factories for long hours under dangerous working conditions. One contractor died making Hershey chocolate, yet the US federal government did not cite the large brand for his death because it didn't technically employ him.
More recently, some Facebook contractors have reportedly suffered from mental health issues due to seeing problematic content, but they are technically employed by another contracting firm. Thus, Facebook is not directly responsible for these issues, Padin said.
"The company that controls the work, Facebook or whatever the host company is, is not responsible for the conditions of the work for their contracted workers," Padin said. "It creates an incentive to put these temp workers in the worst jobs, the most hazardous jobs because the host employer is usually not held liable."
Experts worry the California bill may not do enough to protect contract workers — but it's a step in the right direction.
The legislation will likely face obstacles before January 1.
Uber and Lyft vowed to spend $60 million on a ballot proposal to undermine the law, the New York Times reports. Additionally, Uber's chief legal officer said the company would "respond to claims of misclassification in arbitration and in court," according to The Wall Street Journal.
Other issues to the bill remain. For one, AB5 does not address the issue of subcontract work, despite the fact it's closely tied to fissuring workplaces alongside independent contract work.
Another issue could be that big companies use case examples of some independent contractors who were correctly classified suffer after the bill passes. Some religious groups, for instance, worry they won't be able to make their pastors and rabbis employees, according to The New York Times. Weil said companies could use these cases to point to the faults in AB5 during subsequent court battles.
"You can quickly unwind a system of protection that way if people aren't careful," Weil said.
Still, the experts were spoke to agree this bill is a step in the right direction for labor rights.
"Because California is such a powerful and prominent state, I would predict other states being interested in following its lead," Oswalt said. "They're kind of the first bird on the wire and I think we're gonna see more to follow."