The Potential Consequences of AB-5:
The potential impact of AB-5 on workers, employers, and consumers may be far reaching.
The US Government requires all employers to verify that employees are eligible to work in the United States. Verification includes providing passport, Driver’s License or Green Card at the time of hire. This regulation applies only to those workers hired as W-2 wage earners, not of those hired as 1099 independent contractors. One of the perhaps unintended consequences of AB-5 therefore is the impact it will have on undocumented populations and their ability to find full-time employment. The economy in many sectors relies heavily on workers who are undocumented to perform tasks and jobs that are necessary but less desirable. For example, delivery people, ride-share drivers and agricultural workers will likely be negatively impacted by the stricter rules around worker classification.
Some experts estimate that ineligible workers may make up as much as 25% of the total Uber/Lyft workforce in some areas*
In addition to the impact fewer workers will have on the end user experience of ride share, consumer grocery experiences or delivery options there are wider implications in terms of unemployment, poverty, education and health care. Already lower income communities may be adversely impacted by increased unemployment, lack of health coverage causing higher costs in emergency room visits and increased poverty’s impact on society on a larger scale.
For employers, classifying workers as W-2 wage earners as opposed to 1099 independent contractors can increase costs by up to 35%.*
In industries with already narrow margins, that increase will mean fewer employed persons or increased cost to consumers. Uber/ Lyft estimate that fares will necessarily jump 20%+ to cover increased costs to those corporations.*
The intent of AB-5 was certainly the protection of the very population who may find themselves negatively impacted by the new regulations. For example, janitorial staff who were previously working as 1099 contractors 35 – 39 hours/ week without benefits, workers compensation or other protections offered to W-2 wage earners will now be required to be reclassified. That reclassification will give those workers some form of health coverage, among other protections. If, however the employing company can only afford to keep 65% of the workers, given the 35% increase in costs, the negative impacts to that population would be significant.
The coming months of implementation of and likely, litigation of, AB-5 will certainly provide more data with which to accurately assess the impact of the new regulations on business, consumers and the workforce it was intended to protect.