California’s Hybrid Worker Classifications Will Sting if Your Business Is Unprepared

By: | September 15, 2020

Jillian Slyfield serves as Digital Economy Practice Leader at Aon. In this role, Slyfield addresses digital disruption of traditional industries and the on-demand economy. Her focus areas are Alternative Mobility, The Future of Work and New Economy Digital Risk. She can be reached at [email protected].

Collectively, the experience of COVID-19 has shown us that the way we work and our relationship to our employers is dynamic, at times precarious and inherently malleable.

We now understand the opportunity and demands of virtual work, and we have redefined “essential work.”

Essential workers include, among others, an enormous cadre of drivers who are shuttling us and our food and parcels to our doorsteps at a time when our nation is sheltering in place due to a global pandemic.

Therefore, the introduction of California’s Assembly Bill 5 (AB5) and corresponding Proposition 22 (Prop 22) during the COVID-19 pandemic is timely.

An employee who works full time for a single employer, collects a salary and who has certain legal protections and benefits is becoming less common.

Until now, an alternative was to work as an independent contractor who performs work for multiple employers without an employment contract, benefits or most legal protections.

Interestingly, whether a worker is an independent contractor or an employee in the eyes of the law varies by state and has become highly contested.

What is at issue in the new California legislation is whether a hybrid worker classification can be created to meet the needs of a new kind of worker. This issue reverberates well beyond California, with a handful of other states poised to follow California’s lead, and others trailing closely behind.

What happens with AB5 and Prop 22 in California will impact employment law for platform-enabled businesses and many others that also utilize gig economy talent across the United States into perpetuity.

With the advent of blockbuster apps for rideshare and delivery, a generation of workers is driving their personal vehicles for part-time and full-time work. It is now common for drivers to have two or three apps open at a time and for example, accept a passenger on one app while dropping off their passenger with another app.

It is this intermingling of tasks that supports their classification as independent contractors and also creates complexity when attempts are made to answer questions about minimum wage, number of hours of work performed in a day, and worker safety nets.

When AB5 was passed in September 2019, it changed the criteria to determine worker classification, resulting in rideshare and delivery drivers being reclassified as employees. Uber, Lyft and DoorDash led the opposition to AB5 and sponsored Prop 22, a ballot initiative that exempts rideshare and delivery drivers from AB5 but enacts policies to provide specific wage and labor protections as well as contributions to health benefits.

The proposed benefits of Prop 22 include:

  • Minimum wage
  • Health care subsidies calibrated to hours worked
  • Insurance in the event a driver is injured on the job (Occupational Accident) inclusive of a medical benefit, wage replacement and a death benefit
  • Anti-discrimination and sexual harassment policies
  • Driver skills training

The majority of rideshare and delivery drivers work part-time and prefer to be independent contractors rather than employees.

They are not eager to lose the flexibility aligned with fractional work, and some are dependent on the flexibility that enables them to care for elder parents, young children or manage other unscheduled demands.

These workers have gotten lost in a system that rewards employment and disproportionately disenfranchises equally industrious independent workers.

The insurance implications of AB5 and/or Prop 22 are significant. In addition to the health and wealth benefits expressly stated, platform employers are considering the impact of AB5 to their property and casualty programs. 

In May 2020, California brought claims against Uber and Lyft in an attempt to force the companies to comply with the new standard for classifying workers as outlined in AB5. In August, both companies appealed the decision.

Uber and Lyft will present combined oral arguments to the court on October 13, 2020, and Prop 22 will be on the November 3, 2020 California state ballot.

The myriad of insurance ramifications of both AB5 and Prop 22 create complexity and cost in a business model that was designed for simplicity and flexibility.

There is, however, a groundswell of support for the gig workers who have shown themselves to be some of the most essential workers in our economy. This support is leading to change and possibly to a much-needed new definition of worker. &

More from Risk & Insurance