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What happens to California drivers for Grubhub, Doordash, Uber Eats etc. on January 1 with AB5?

Quick Reference: Tax and PPP help.

Drivers who are Independent Contractors for Grubhub, Doordash, Uber Eats, Postmates in California are all wondering, with AB5, what happens to us January 1? What answers are they getting?

Those wondering what happens to California Drivers for Grubhub, Doordash, Uber Eats etc with AB5 on January 1 are hearing crickets.
Those wondering what happens to California Drivers for Grubhub, Doordash, Uber Eats etc on January 1 are hearing crickets.

So what does happen on January 1?

Nothing.

The only thing that changes on January 1 for California contractors will be the date. That's it.

If you're a contractor for Grubhub or Doordash or Postmates or Uber Eats or any other app that uses contractors, nothing else happens

The AB5 Ball is about to drop on New Year's Day
The AB5 Ball is about to drop on January 1. What happens then?
Original picture (before my changes) by By Susan Serra, CKD from Long Island, USA – 222 (2), CC BY-SA 2.0, https://commons.wikimedia.org/w/index.php?curid=23313305

Nothing changes until it changes

Yogi Berra would be proud of that one, wouldn't he?

I'm not sure how many ways to say this: nothing will be different on January 1.

If you are a contractor for Grubhub, Uber Eats, Doordash, Postmates, Lyft, or any gig economy company, you will be a contractor on January 1. And January 2,

If I had to make a guess, I'd say that this time next year you will still be a contractor.

Maybe something will change. Maybe.

Here's something you have to understand:

AB 5 Does NOT make anyone an employee.

There's a common misunderstanding. AB5 did not and will not change anyone's status. All it does is provide a guideline around whether a company can call you a contractor. And to be honest, it doesn't do a great job at that, but we'll get into that.

Yes, the law goes live January 1. However, nothing will change about your relationship with any of these gig companies until the companies announce a change.

Understanding AB5 and what will happen to Grubhub Doordash Uber Eats contractors on January 1 in California

On the website last September we did a multi-part series on AB5 and summarized it in Episode 37 on the podcast. You can get more in depth on it and what things might look like there, but let's talk about the basics.

Here it is very simply. When a business needs to have work done for them, they have two choices: Hire an individual (an employee) or they can hire another business. That's it.

There are a lot more expenses and regulations and responsibilities when hire employees, and so businesses have found that they can save a lot of money and hassle by calling their workers independent contractors (also known as businesses).

But we find over time there needs to be some clear distinction between when you can use a contractor and when you can't. AB5 is an attempt at that.

And that is the thing you have to understand about AB5. It is NOT a law saying we are employees. It doesn't change anything in that regard.

AB5 only defines WHEN and WHERE a contractor can be used.

That's it.

The ABC Test.

Will Grubhub, Doordash, Uber Eats, Postmates et al pass the ABC Test?
Will Grubhub, Doordash, Uber Eats, Postmates et al pass the ABC Test?

AB5 lays out three tests. If a worker relationship meets any one of these three tests, it is considered an employment relationship. Those tests are:

If the business controls the work of the worker

If the worker performs work that is part of the business's usual course of work

When the worker is an established business in a line of work normally considered work a business would perform.

The problem with other laws about being an independent contractor

There are a number of different measurements and tests used by different states and jurisdictions to determine whether it's legal to use an independent contractor.

The problem with many of them is they are not very clearly defined.

There would be so many things that it was impossible to meet every one of them, and then you would have to decide whether compliance in some areas outweighed the violations in others. This can be messy because it then leaves it up to someone's opinion.

AB5 was designed to change that by providing three clear definitions. In other words, a violation in any one of those three meant that the worker is considered an employee.

So why won't anything change when the law goes into play?

Remember that the law doesn't change anyone's status. It only defines what WHEN the company can use contractors. The law doesn't say that Grubhub workers are employees, it says that Grubhub can only have contractors if they meet the three tests above.

And here's the thing that is coming into play: Gig companies are saying that they meet the qualifications. That means they don't feel the need to switch over to using employees.

There's a lot of false rhetoric out there about this. I see articles and headlines that Uber is defiant, that Doordash refuses to obey the law. That stuff is garbage.

Most of that is for making a statement or for getting readers but it usually also displays a distinct ignorance of what the law actually is.

The position of all these companies is that it is still legal to use contractors. And to be honest, I'm not sure they are wrong. I'll get into that in a bit here.

If things change, when and how will it happen?

Things will change if and when any of the companies, Grubhub, Postmates, Doordash, Uber Eats or any of the others, decide to hire employees instead of contractors.

If that doesn't happen, things change when they are forced by the state and by the courts.

At some point, if any of these companies decide that either they can't win the fight, or that it's not worth putting up a fight, they can make the decision to use employees.

But at no point will anyone just wake up and poof, they're an employee.

If they are forced, it will take time, because it will have to go through the courts. That can come one of two ways.

The state will enforce the law.

That's not a given. Massachusetts has had a similar law in place for years. Last I checked Grubhub and Doordash and others are using contractors there.

You have to remember that the state of California is strapped for cash in a big way, and it costs money to go after these companies.

But here's how you can expect it to play out. At some point the state would step in and notify the gig company that they are in violation. The gig company will say no we aren't. The state will say yes you are. And it will get silly that way.

You can expect that the state will give notice that they need to be in compliance by a certain date or face a fine.

Somewhere in the middle of that, either the state sues the company, or the company files a suit challenging the ruling. And now it goes to court. And the state will try to prove that the company violates the law, the company will try to prove that they are in compliance with the law. It will be messy and it will be expensive.

And it's going to take a long, long time.

Here's the funny thing: It may never even come to a court decision. The state could figure out that they may lose and it's not worth spending any more money on this fight and they can back out. Now we're months and probably years down the line and we're no further along than January 1.

And gig workers in California are still contractors.

The companies are sued in civil court and lose.

Now that the law is in place, a contractor or group of contractors could sue these companies for misclassification. They can sue demanding things like minimum wage, overtime, reimbursement of expenses, etc. They have more ammunition.

It is possible for this type of lawsuit to lead to a court determination that the contractors really are employees. And once that ruling happens, others can pile on and it can become so expensive that companies are financially forced to change their model.

And it will take years.

I'm going out on a limb and saying it won't happen.

It's not that there aren't a lot of greedy lawyers chomping at the bit to make some big money off these cases. In fact, it's BECAUSE of their greed that it won't happen.

Look, lawyers have had these gig companies on the ropes for years. There have been countless settlements over the years. Some pretty major ones. A lot that never were made public.

But one thing you have to notice about that satement? The word “SETTLEMENT”

Two years ago Doordash settled a misclassification lawsuit. Here's a line about the settlement in an article that was particularly telling.

The named plaintiffs, Marciano and Kissner, will receive $7,500 each and Liss-Riordan will get up to $1.25 million, according to the settlement

TechCrunch April 10, 2017

The lead plaintiffs got $15,000 between them. That's .015 million. The lawyers got 1.25 million.

Let me ask if that looks like the best interest of the contractors was in play here?

They were suing because of misclassification, yet they didn't push for a verdict that would have actually done something.

Lawyers have been settling with gig companies for years. I don't expect anything to be different in California.

The greatest likelihood that a company will change status is when it makes sense for them to do so financially.

Deliv already made that decision, before the law was even passed. There are a couple of small companies that decided it wasn't worth the fight.

I made the case in last week's episode that I think a company could go all in on actually being a delivery company, hire employees, focus on logistics, and dominate in customer service and satisfaction.

The thing about using employees is you can control the process, and I really believe it's possible that developing an efficient model of delivery with employees could be cheaper than paying contractors.

I probably don't know what I'm talking about. These companies obviously don't think so, or they're convinced using contractors is still the best course of action. But whether it's the benefit of using employees or whether the cost of defending their position in court is outweighing the benefit of using contractors, the time could come where it makes sense for a company could change.

But these companies don't have a prayer of winning in court, do they?

Actually… they do.

There's a few things at play here. One has to do with whether or not the state actually enforces the law. The other has to do with whether they are actually in violation.

You really should read this article in Forbes about how AB5 doesn't really have any teeth. Amidst all the hype about how everything is going to change, this is one of the best treatments of the law that I've seen. Seriously, check it out, it raises some very valid points.

Here's the biggest problem I see with the law. It's vague. It says a business can't control the work, but what does that mean? It says that the work can't be part of the usual course of business, but how do you define the usual course of business?

That's the problem with laws: AB5 came about because previous laws were not well defined. But AB5 really didn't get much better, because the A, the B, and the C are not well defined. And that means that courts have to interpret, and well paid lawyers can do a lot in swaying that interpretation.

The ABC test isn't as clear as you would think.

Grubhub has already claimed in a lawsuit a couple years ago that they are not a delivery company. What was the lawsuit over? Misclassification.

Doordash just had drivers agree to new terms and they made a point of saying they are not a delivery company but a tech company.

And with the ABC test, this is why that's important. These companies are claiming they are tech companies who merely connect restaurants, diners, and couriers. That addresses the B in the ABC test, that work cannot be the usual course of business.

If they are delivery companies, hiring contractors to do the delivery is a problem. If they are tech companies, since we're not the ones connecting everything and creating the tech, then we're not in violation.

And here's the issue: Who determines which is right?

It's like I said last week, if it walks like a duck and quacks like a duck… I think you can make an extremely compelling case that these are delivery companies, but guess what?

You have to prove it in court. And then it comes down to, who has the best, most believable lawyers?

And seriously: Who actually understands this provision: ” The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.” What does that even mean?

Trying to understand some of these definitions in AB5 can leave you scratching your head
Trying to understand some of these definitions in AB5 can leave you scratching your head

Do you see the problem here? You have to get explanations of what that means, and if it's THAT unclear, there's a problem.

Does that mean that the person was already established as a business BEFORE signing up? Or is it more that it's a business that normally is done by businesses and not employees? Do you see the problem when you have to define all that?

Can Grubhub, Doordash, Postmates and Uber Eats pass the ABC test?

Absolutely.

Will they? I wouldn't be afraid to place money on it. Seriously.

Are we free of control?

There are areas where you could say no.

However, having run other businesses I can say I've got more freedom doing this than any of the others.

One of the biggest arguments for control is that ‘you can't set your own price.' It's compelling, but does that mean we're controlled?

If you've done affiliate marketing with a website, you couldn't set your price there. When our family telecom business sold local, long distance and internet services for other companies for a commission, we couldn't set our price.

You can be a completely independent business but when you sell items for another party, you have no control over the price. It's take it or leave it.

Because of that I think the gig companies COULD win the control argument.

Are we doing work outside their normal course of business?

A lot of people see this as the biggest vulnerability for gig delivery companies.

However, it's not a slam dunk. They're putting a lot into the whole facade of looking like they are primarily something other than delivery companies.

I do think there's a problem with saying they're just facilitating by connecting people. They do too much coordination. They sell the product, take the payments, and make the payments to the contractors and the restaurants.

That alone makes it a real stretch for a company to say, ‘we're not really a delivery company.'

However, they have all the i's dotted, t's crossed, i's crossed and t's dotted legally.

The question is, how good is the state going to be at disproving? Who's best at convincing a judge or jury. We all know common sense doesn't always win in court rulings.

Let me put it this way: I don't know how familiar you are with how powerful the transportation commissions are in many of these cities, or how much political power some of these cab companies have. Uber couldn't have gotten where they are without some really really really good lawyers.

Are we ‘customarily engaged' in a business the same nature of the work being performed?

I really didn't want to use that question. Scroll up and read the part where I asked, ‘what does that even mean?'

Do we meet that last test? It depends on where the emphasis is.

If the emphasis is on the ‘customarily established business in the same trade', they can win on this one. Third party delivery companies have been around forever. Individuals engaged in delivery have been around forever.

There's another angle that may not be in favor of these companies.

I've used the term often, “Accidental Business Owner.” The vast majority of people who signed up for this did not go in with the intention of being a business owner. You could probably argue that most don't even realize they're business owners.

That's a problem, to the point that the C-Test might be the hardest to pass. You have people signing up thinking they're just getting another version of a job. They're not going into the relationship thinking they're running a business.

This is why I say the C-Test is really poorly defined. These companies could pass pretty easy if you took the first definition. They'd probably fail miserably if you took the second interpretation.

Which brings us back once again to the importance of good lawyers.

In the end, the reason I think that gig companies could actually pass these tests isn't as much that they actually MEET these tests.

It's that they have good lawyers who could drive a truck through the holes in this law.

And what happens if they do change?

Understand this: At no point will you just magically transform from contractor to employee. Being an independent contractor for Grubhub or Doordash or Postmates or Uber Eats does not translate into suddenly being an employee.

At whatever point they make the change to employees, two things will happen:

  • Your contract will end
  • They will hire drivers as employees.

Those are two completely different processes.

Understand that there is no guarantee that you will be hired. They didn't tell you that when they were pushing this through, did they?

When Deliv made their change, they ended the contracts and hired staff, and a lot of contractors were NOT hired as employees. You can expect the same with any of these companies.

How do I know when things will change?

We don't know when exactly things will get real with AB5, but we can still get ready for the changes.
We don't know when exactly things will get real with AB5, but we can still get ready for the changes.

All I can say is, keep watching. Watch the news, look for things like the state filing suits against Grubhub and Doordash and the like. Follow the news. Keep on top of developments, but beware of the hype.

Much of the crap that's out there makes it look like it will happen Wednesday. It won't.

If the companies do make a decision to change, I'm pretty sure it will take time. It takes time for them to ramp up. They need to get management and HR departments ramped up, they need to develop policies, and they need to hire a TON of drivers.

You'll see an announcement from them in some way shape or form.

I won't guarantee that they'll do it in a way that's in your best interests because your best interests have NEVER mattered to any of them.

Be prepared for the possibility that they'll close up shop instead of switch to employees.

But stay on top of things.

And then, just be ready. You have time – you don't know exactly when things will change, you don't even know IF they will change.

I'm incredibly thankful I'm not in California. Even still, this could have a ripple effect across the country.

It will take time. Eventually though, something's going to happen, so be ready.

Do you want to be an employee? Maybe that's not as big a deal if it changes.

If you don't, what WILL you do? Start planning for that so you can make a change when it does indeed start hitting the fan.

Could this help someone else? Please share it.

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