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The murky waters of gig economy regulation

With the fate of the gig economy in CA unclear under AB 5, here's what's happening & what to expect.

Sponsored by ShiftPixy

As the gig economy continues to grow, contributing an estimated one trillion dollars to the overall economy last year, legislators across the country are attempting to regulate the seemingly bountiful business model. While there are many upsides associated with the burgeoning gig economy, including flexible work arrangements and new, convenience-driven services like restaurant delivery, its downsides are becoming increasingly apparent.

Led by the sweeping Assembly Bill 5 in California, the state and others alike are recognizing some major problems associated with the concept of ‘gig work’ that presumably need to be addressed -- namely the issue of misclassification. With the current state of the gig economy in flux, freelance workers and the companies that deploy them need to prepare for the major changes ahead.

Assembly Bill 5: Who, What, When

Assembly Bill 5 (or AB 5) was signed into law by California Governor Gavin Newsom last year, and took effect on January 1, 2020. The law forbids companies from using contract labor, forcing the reclassification of independent contractors to employees and ultimately, requiring businesses to provide their workforce with basic labor rights, including minimum wage, workers’ compensation and other benefits.

The bill was authored by Assembly Member Lorena Gonzalez (D- San Diego), and initially was aimed at forcing ridesharing giants, Uber and Lyft, to hire their tens of thousands of California drivers as employees. However, the impact of AB 5 is being seen amongst other industries leveraging a gig workforce, including food delivery, trucking and freelance journalism.

Since going into effect, other states have begun introducing similar legislations aimed at regulating the gig economy, and namely, the billion-dollar gig economy companies benefiting most from the independent workforce. For instance, New York Governor Andrew Cuomo is quickly becoming a notorious activist in the space, promising to protect underpaid freelance workers, as well as taxpayers, against what he views as economic exploitation.


Gig economy giants have seemingly flown under the radar for many years, but it’s clear that the government is beginning to catch on – and already has in California’s case. So now, with Assembly Bill 5 in full swing across the state, employers are planning for and introducing major changes to their business models by reclassifying their workforce as employees – while others are fighting back.

Earlier this year, U.S. District Judge Dolly Gee rejected a motion for preliminary injunction that Uber and Postmates filed to stop the enforcement of AB 5. The companies held that the bill is undercutting workers across the economy, and “will remain committed to the modernization of worker classification and worker protections.”

For those intending to abide by AB 5, the legislature has identified a new test to stop misclassification in California. Under the stipulations of this test, workers are considered employees unless (A) they work free from a company’s control, (B) do work outside of the company’s core business, and (C) have independent enterprises doing that work.

Even beyond the legal implications facing organizations that don’t follow the ABC test, businesses who previously leveraged a gig workforce will see many changes within their day-to-day operations. For instance, restaurants today are dealing with the challenging and costly dilemma of food delivery, and independent contractors from companies like Grubhub or Uber Eats were previously there to help ease the burden. Now, across California, these restaurants can no longer rely on the help of third-party delivery drivers as they used to, which will lead to newfound operational struggles.

What about the workers?

For most gig workers, the prospect of benefits, PTO and workers compensation are worth being celebrated. However, there are many others that joined the gig economy purely for the flexibility it offers, which is now being threatened by Assembly Bill 5. The ability to set one’s hours and adjust their schedules from day-to-day or week-to-week is one of the main reasons 35% of the U.S. workforce has sought out gig work.

In the restaurant delivery space specifically, drivers have boundless flexibility, and are able to pick up and deliver orders wherever and whenever is most convenient for them. This flexibility drivers for third-party platforms are able to enjoy is also the reason why restaurant delivery has grown so popular over the years – with the help of these drivers, consumers’ favorite food is available at their beck and call. AB 5 threatens this flexibility for drivers and ultimately, the future of restaurant delivery.

Freelance journalism is yet another industry being impacted by the bill, which initially included a provision barring freelancers from submitting more than 35 submissions to a single publication. Assembly Woman Gonzalez has recently agreed to make changes to Assembly Bill 5 that specifically accommodate the needs freelance writers, while still providing protections against misclassification. While the effort should be applauded, the gripe amongst the freelance journalism community is undeniably justified, and shows that waters of misclassification are murky and can’t be addressed by a blanket regulation.

With AB 5 still in its infancy stage, there will continue to be uncertainty, lawsuits and countless revisions, leaving the future of the gig economy, and industries like food delivery and ridesharing, still up in the air. What is certain however is that those gig economy giants who have profited immensely off the backs of independent contractors are under a microscope and moving forward, will need to place a greater focus on the workers that power their businesses.  

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