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Commentary: Why was AB5 Necessary for Gig Delivery?

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Note that this article, “Commentary: Why was AB5 Necessary for Gig Delivery?” is the third of a six part series we will be posting about California Assembly Bill 5 (AB5) that just passed the California State Senate. 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.

I'm a bit of a contradiction on this whole AB5 thing. I prefer being an independent contractor. The reason I chose to do delivery work is because I COULD be an independent contracter. If I lived in California, I would not continue in this work as an employee. In the second article in this series, I shared the things I do not like about this legislation. I am concerned because when the government gets this kind of tunnel vision in how they decide to fix an issue, they create a lot of unintended consequences. So to boil it all down, I don't like it.

However, I understand why it had to happen. In the end, it's about delivery companies like Grubhub, Doordash, Postmates, and Uber Eats (along with many other gig companies) exploited the independent contractor status. If there has to be only the choice of contractor or employee, and you have to pick one across the board, I do believe it should be an employment thing.

Words like Independent Contractor, Entrepreneur, Self-Employment and related terms laid out in a collage
Why it was necessary to force the industry away from independent contractors

Gig Companies Have Abused and Exploited the Independent Contractor Designation, Creating the Need to Change.

It starts with the nature of the work

Here's the deal: You have companies that provide delivery services. They need a massive workforce in order to complete those deliveries. Add to that the fact that most people who sign up to deliver for them are thinking of one thing: getting paid a fair amount of money for a fair amount of work.

That is an employee arrangement.

Understanding the significance of the C-Test

Did the worker ALREADY have an established business that was designed to do the kind of work that they are going to perform for the company?

I think the third test in the ABC test in AB5 is the most overlooked of the three, maybe because it's the least understood. But it may well be the most significant as to whether this SHOULD be a law. That test reads: ” that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.”

I don't know why they can't use plain language, you know?

Here's what it boils down to. An independent contractor is someone running a business and AS A BUSINESS is performing work for another company. That's why I think this may be THE most important and most appropriate test of the three (although the control test is going to give it a good fight for that spot).

The idea of this test is to ask the question: Did the worker ALREADY have an established business that was designed to do the work that they are going to perform for the company?

Why the C Test Matters

Put it this way: I own a widget store. I need a book keeper. Frank runs a book keeping business, so I hire his business to do my bookkeeping. I hired an already established business to do that work for me. It would be silly to require me to pay the payroll taxes and all that goes with having an employee for doing this.

And this is where companies found a loophole. We will just claim that Joe, our cashier, is working as a business instead of as an employee and that way we don't have to pay the taxes and insurance and all that goes with having an employee.

But if Joe wasn't already in business for himself. Joe did independently establish a trade or business of being a cashier for other businesses and then seek out the widget store as a customer. Joe just came in looking for work. When Joe has to create the business as part of getting the work, Joe is not truly an independent contractor. Joe is an employee.

And here is how the C Test applies to Grubhub, Doordash, Postmates and Uber Eats

All of these companies need a lot of people to complete their deliveries. So here's the big question: How do they go about getting these people?

There is no RFP. There is no seeking out businesses to perform these deliveries.

They advertise it as though hiring for a job.

And it is when signing the contract that it becomes a matter of, “oh, by the way, make sure you understand that you are an independent contractor.”

Grubhub and Doordash are not hiring independently established businesses to do the work for them. Postmates and Uber Eats are telling their applicants that you have to become businesses to do the work for us. They recruit like you would employees and THEN make you independent contractors.

These delivery apps that use independent contractors are essentially the ones creating the businesses by nature of the process. Most drivers could care less if they were contractors or employees, they just want the money. What these companies do is create a lot of accidental business owners. This is one of the clearest indications that this never should have been an independent contractor relationship.

There are exceptions, but they are very few

I see myself as an exception of sorts, at least partially. When I originally signed on with Uber Eats, I was NOT an independently established business already in the delivery profession. However, after delivering with Ubereats, and then signing on also with Grubhub, Postmates, and Doordash, you could make the case that I was that independently established business at that point. But this exception was pretty rare.

I do know a LOT Of contractors claim they prefer to be independent contractors. More often than not, it translates to “I don't want a boss.” I would say that the percentage that truly understand what an independent contractor is, and that approach the work with a business owner mindset, is very small.

Gig Companies Taking Advantage of Contractors

Very few contractors truly understood what they were agreeing to when they checked off that “I understand that I am an independent contractor.” For most I think there's just a mindset that it's just another type of employee. I see that in the kinds of questions that I see asked all the time by new drivers. Why didn't I get a paystub? Why aren't I getting minimum wage? Where do I submit my miles for reimbursement?

I'll be honest, there is a part of me that has trouble finding sympathy for people who sign on to something without taking the time to understand what they are signing on to. I have trouble comprehending how someone can see a statement that says I understand I am not an employee but an independent contractor and not stop for a minute and say “wait a minute, what exactly does that mean?”

But the fact remains: a very significant portion of the peope signing on really have no clue what it means to be an independent contractor. They don't realize the repucussions. There is no understanding that there is NO minimum wage or coverage protection. They don't get that they have to take care of their own taxes and have no clue what that means. They don't understand profit and loss. There is no comprehension that their personal car insurance is now invalid while delivering. They have no idea that there's no workers comp. These contractors are completely on their own as business owners and they have no clue.

And this is the part that exposes the unethical nature of Grubhub, Postmates, Doordash, Uber Eats and other gig companies:

They know.

These companies KNOW that contractors have no clue what BEING a contractor means. They know and they do nothing. There is no attempt to make sure that people understand what it means. They just have you sign off on a statement. They know and they do nothing.

Why?

Because if applicants understood that they would need commercial insurance to be covered in deliveries, they wouldn't sign up.

If applicants understood that there is a very high probability that they make less than minimum wage (and most do without realizing it), there wouldn't be enough drivers to fulfill the orders.

If those potential drivers understood the tax situation, if they understood that they really are running a business, that they really are completely on their own without any protection from the companies they are delivering for, if they truly comprehended how completely exposed and vulnerable they are, it would be impossible to get enough people to work for them.

And, if they really understood what being an independent contractor really was, then they would understand they weren't employees and they couldn't be manipulated into acting like employees.

These companies know that most contractors don't understand the nature of being a contractor. And that's the way they want it. They are willing to let the people who are making money for them be completely exposed and vulnerable just because if they did any different they'd either have to pay more for getting the work done or they wouldn't be able to get enough workers.

Either way, it's evil.

(Wanna know how I really feel?)

Doordash, Grubhub, Uber Eats Postmates et al are exploiting the system.

They don't care that workers are making minimum wage. There is no concern about the vulnerability of unprotected and uninsured couriers. It's all about getting the people to do the deliveries while paying as little as possible.

That's all that matters.

Using the independent contractor status at this kind of scale is an abuse of the system.

I wish there were an alternative that would let people truly seek out the independent contractor relationship. If it is the choice and the intent of the applicant going into the relationship, it should be allowed.

If there are not enough such individuals to meet the need, or to even meet a FRACTION of the need as in this industry, then it's clear that the one intending to create these businesses is the employer, not the contractor.

And that's why this is necessary. I don't think it's the best answer, but if there is no other answer being considered, AB5 had to happen to hold these companies accountable for how they utilize people to do their work for them.

AB5 and Delivery Contractors Series:

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Seven Questions on How AB5 Will Effect Couriers for Grubhub, Postmates, Doordash, Uber Eats, etc., in California