Employee or Independent Contractor?

What Uber, Lyft Prop 22 win means for future of all freelance work

Miles Everson, CEO of MBO Partners

From CNBC, Eric Rosenbaum discusses the implications of voters passing Proposition 22, the California ballot measure that allows Uber and Lyft drivers to be classified as independent contractors. Eric writes:

California voters gave Uber and Lyft a big win in the fight over the future of gig economy workers, approving Proposition 22, but it is not only the tech giants and freelancers delivering people and food who expect major repercussions from the ballot decision.

Independent contractors across the country might breathe a sigh of relief in that California voters sent a message to the state’s legislators that AB 5, the law which was enacted to classify freelancers as employees, is widely unpopular. Other states, including New Jersey, Massachusetts, New York and Illinois, have been among those considering crafting legislation to force companies to deem freelancers as employees. Now those states can more clearly see the risks, experts say.

“It won’t go away, but it will be revisited and look at much more closely,” said Miles Everson, CEO of MBO Partners, which is a consultant to the independent contractor community. The overriding message that Prop 22 sends is that “one size fits all” legislation which lumps all freelance professions together doesn’t work and won’t be popular with voters.

AB 5′s problems were already well-known, as California was forced to create roughly 100 carve-outs for various professions to be exempt from the law. That included many unskilled workers “in the zone of the big guys taking advantage of the little guys” Everson said, but also the independent contractors a firm like MBO Partners serves: solo entrepreneurs building their own businesses, making six-figures and holding advanced education degrees in many cases.

“It’s an important societal issue,” Everson, whose firm supports a more detailed set of self-employed guidelines, said, noting more people are working as freelancers today and growth continues, but AB 5 has not been a good solution. “This is not just about Uber and Lyft. It’s about people who want to build their own business. … High-end knowledge workers generating six figures should be happy about the decision.”

“But it’s far from over,” he said. “Working populations have different needs and characteristics and you need to separate that out for different cohorts of workers, and unto they do it, there will be more swings in the pendulum. It’s a step towards compromise, but a much larger step highlighting the need to not generalize legislation.”

Steve King, a partner at small business and independent contractor consulting firm Emergent Research, thinks it will influence action in other states. “It will dampen enthusiasm for AB5-like laws elsewhere and I think will reduce chances of the [current version of the] Pro Act at the federal level, even if Biden wins,” he said. “Prop 22 won pretty big.”

For freelancers based outside of California this result is useful, he said, because it is another reason to not pass an AB 5-type law unless lawmakers are very careful with it. That will deter other states from going down the AB 5 path. “This vote shows you will get pushback wherever they would try another AB 5. This was a pretty clear slap in the face of AB 5,” he said, adding, “had it failed, it would have been much more likely other states go with an AB 5.”

Misclassification of workers remains a serious issue, and freelance, which now represents 12% to 15% of the labor force in the U.S., will continue to grow as part of the labor force and laws around the country remain confusing.

Kim Kavin, co-founder of the non-partisan Fight for Freelancers group, and a freelance writer and editor based in New Jersey, said, “Everybody is celebrating today. All the mayhem in federal election results … we are just thrilled about this one result.”

She added that while all the focus is on the win for Uber and Lyft, “we see this as a major win in a bigger battle, we see the voters standing with us. …  We sure hope it has an impact on New Jersey policymakers … and at the federal level.”

King favors a well-crafted federal law to provide clarity. A version of the Pro Act, which has been criticized by the freelance industry in its current form, which is written to be more freelancer-friendly and identify truly independent contractors, is needed, he said.

“The most productive way would be at the federal level, even if not enacted as law,” Everson said, adding Department of Labor guidelines can help, though they can also change from administration to administration. President Trump’s DOL has proposed new worker misclassification guidelines.

Within California, the impact of Prop 22 is limited for now. While traditional logistics companies could be next to make the case that they are app-based, like an Uber, many freelancers across professions are still subject to AB 5 and that won’t change.

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