Note that this article, “What is AB5 and How Does it Relate to Grubhub Doordash Postmates Uber Eats Drivers?” is the first of a six part series we will be posting about California Assembly Bill 5 (AB5) that will be voted on sometime this week. We published this week’s episode of the Deliver on Your Business podcast early due to the pending passage of AB5. Normally we run a companion post that matches the podcast episode. There’s just so much to talk about with AB5 that it couldn’t be fit into a full episode, so I decided that a series related to it would make more sense.
The California State Senate is expected to vote on AB5 this week before the end of the 2018 legislative session. All indications are that it will pass. Governor Newsome has already announced his support of the legislation. It would be a pretty big suprise if something happens to stop this legislation from going through.
What is AB5?
AB5 stands for Assembly Bill 5. It has already passed the California State Assembly and has now cleared all appropriate committees. AB5 writes into law the basics of the Dynamex decision that the California State Supreme Court decided in 2018.
Okay, let me just interject one thing. Does anyone else think this is backwards? Making a law to codify a court decision? Isn’t it supposed to be the other way around? Anyway, I digress.
In that decision, the Court determined that the ABC test should be used to determine whether it is appropriate to classify someone an independent contractor. That meant that there were three determining factors, and all three factors had to be met, otherwise a worker had to be classified as an employee.
The three tests of ABC
Control. If a company controls the worker, the worker is an employee. That can mean setting a schedule or determining where the work is done. It can involve supervision, telling the worker how to dress or what to use.
Type of work. If the work being performed is the type of work that the company does, the worker is an employee. A plumbing company can hire an accountant as an independent contractor but they cannot hire a plumber.
An established business. The worker needs to be in an established business prior to the relationship that engages in work that is usually considered independent work. In other words, it usually involves the kind of work where someone would normally be thought of as an independent business person. The accountant reference would fit that description. A customer service representative would not.
AB5 Puts the ABC Test into Law for Companies like Doordash, Grubhub, Postmates and Uber Eats and their Drivers.
Like I said, it’s backwards. But this is California. The thing is, you have a state Supreme Court decision, but state agencies can’t work off the decision. This legislation is to create a law that agencies can use and enforce.
How do Gig Delivery Companies Match Up with the AB5 Test?
They will tell you that they match up just fine. But if they really believe that, why is Doordash spending $30 million to fight this thing? When you look at the tests, you can see that it doesn’t look good for them.
This is the one where I would expect they would pass. The National Labor Relations Board recently ruled that Uber drivers were independent contractors, based primarily on the level of freedom allowed to drivers. I think that delivery companies actually offer more freedom than ride share, as most provide better information on which to decide whether to accept or reject. I will say that Grubhub might be the most at risk in this area, as I see things that appear most like trying to force a level of compliance.
Type of work.
Did you know that Uber Eats, Doordash, Grubhub and Postmates are not delivery companies? That’s what they would have you believe. They will tell you that they are technology companies or marketing companies. They would have people believe that they are only matching up contractors with people who need deliveries (even though the payments for service aren’t passed through in any way other than tips).
Huge companies. With huge marketing budgets who sell restaurants on delivery service. They market delivery service to the end user. They arrange for and coordinate the delivery. These companies charge for the delivery and pay the drivers. Customers don’t pay the driver directly. They manage and deactivate drivers. However, these are not delivery companies.
Anyone wanna buy a bridge?
An established business.
This one could go either way.
Here’s the idea of that test. You’re a lawyer, you hang out a shingle, someone comes and hires you to do lawyer things. That fits the established business.
You hear that Grubhub pays decently for deliveries. You go to apply. Okay, they’ll put you to work but you have to do it as a business. You are essentially forming a business so that you can do the work. THIS does not meet the idea of that test.
Now I can say, an independent courier is not an uncommon trade or profession. That’s one thing that fits the description. The other thing that would fit is that I originally signed on with Uber Eats. At that time it was not as an established delivery business seeking to do work for them. I was an individual. However, once I started and branched out to Doordash, Grubhub and Uber Eats, you could say that I was an established business in that particular trade when I signed on with these companies.
The general idea though is that when you are hiring a massive workforce to do your work for you and the stipulation is that you have to become a business, I think it’s pretty safe to say that it does not meet the C test.
What does AB5 Mean for Drivers for Grubhub Postmates Doordash?
At some point, assuming AB5 will pass, that means drivers for gig companies like Postmates, Doordash, Grubhub and Uber Eats will be classified as employees in the state of California. Companies will no longer be able to designate you as an independent contractor.
It won’t be immediate. The law will be in place but it is going to take time to work through this.
We won’t get into whether this is good or bad in this article. It’s already long enough. That’s why I decided to break this down into a series. Upcoming articles include: (I’ll come back and link to them when the articles are posted).