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What the Californian gig law could mean for Australia

With COVID-19 lockdowns and surging demand for food delivery and online shopping, it’s safe to say that it’s been quite a year for the gig economy. Everyone has been buzzing about how the Californian gig law could either bring the next revolution or entirely dismiss the gig economy. 

upcover explains how an American state law could impact you and Australia. 

What is the Californian gig law?

Basically, the legislation requires companies that hire independent contractors to reclassify them as employees. 

(Footnote) California Assembly Bill 5 (AB5), popularly known as the “gig worker bill” came into effect on January 1st 2020, after it had been passed earlier in September 2019. It expands on a court ruling led by the California Supreme Court in 2018,  Dynamex Operations West, Inc. vs. Superior Court of Los Angeles.

What is the reclassifying criteria?

Companies must use a three-pronged test to determine worker status. The test is also known as the ABC or the AB5 test. 

Importantly, this test assumes that workers are automatically considered employees unless the company that hires them can prove the following three things: 

  1. The worker is free to perform services without the control or direction of the company.
  2. The worker is performing work tasks that are outside the usual course of the company’s business activities.
  3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed

Why is it a big deal?


For the companies

This law can have huge implications for companies that rely on the gig worker-business model. Fundamentally, if any company working with an on-demand workforce can’t satisfy that their workers aren’t ‘employees’, they  will have to restructure their organisation, to ensure they are not violating the bill. This restructuring could mean they now need to accommodate minimum wages, paid leaves, insurance, and compensation benefits that could affect their bottom profit line.

Where to from here? 

And that is why it has become such a big deal. Companies like Uber, Lyft, and Doordash, which hire a massive chunk of the independent contractor workforce, are opposing the bill, adding features to build their case that rideshare drivers are independent workers, balloting a $30 million to establish to independence of rideshare drivers, and even  threatening to cease operations in California. One report even suggests that Uber and Lyft could possibly go bankrupt. 

The final decision will be decided in November 2020 on the ballot as the companies push $100 million for Proposition 22, which will offer them an exception to the California Supreme Court ruling and AB5, permanently classifying drivers as independent contractors by making that provision part of the state constitution. 

For the workers

Though the gig bill may mean that gig workers will be treated as employees and be eligible for employee benefits, it comes at a cost. 

The workers in the gig economy are attracted to it because of its flexibility and the option to do the work they like to do. If now they are expected to adhere to a new set of standards regarding how they perform their work, there is very little differentiation between a gig worker and an employee, with flexibility no longer being an option.

For the economy

If laws are introduced that favour the state over the gig economy, the gig business model could disappear altogether. This could mean a huge potential loss of jobs, small businesses and entrepreneurial spirit. For many in the gig economy, gig work is the main source of their livelihood as traditional employment does not match their needs. It is open to all kinds of people and work and if lost, unemployment and dissatisfaction would rise as well as further overburden resources. 

More so, gig work is of critical value and often a service to our communities. They deliver food to homebound seniors, transport patients to and from medical care, provide free rides for wildfire evacuees and support the nation’s largest bike-share networks. Most importantly, the on-demand economy enables thousands of struggling people to earn supplemental income to make rent amid a pandemic of unemployment. 

Okay, how does all of this affect Australia?

Australia is home to many companies that are built on the gig-business model and engages over 2 million people in the gig economy (or almost 14% of the workforce has undertaken some form of gig work in the past year). With more than 3.4 million Australian’s impacted by COVID-19, and Government assistance easing further, this kind of work will be turned to for many. 

Right now, the position in Australia is that you are not employee if you are working with Uber. We do however, have a Shadow Minister for the Gig Economy, Finance and Small Business, the Hon. Daniel Mookhey. For left leaning individuals and unions, they will be wanting to ensure all independent workers are deemed employees. If similar legislation passes through Australia, our economy could experience the same ripple effects as the American economy. Currently, with the coronavirus pandemic, many of the unemployed and temporary workers have turned to gig work to sustain themselves and this law could upheaval the balance brought on by the gig economy. 

The recent Victorian government’s inquiry into ‘Digital Platform Work’ highlights the protection gaps in the gig economy but also proceeds with caution on the legal front. 

What could the future look like?

Uber, Lyft, and many other gig companies have publicly announced their commitment to finding a new approach to gig work. This could include:

  1. Individualised fund (or 1-for-1 fund): for every one hour worked, the independent contractor earns one hour worth of benefits which will be available to them throughout their life. Many in the US have suggested it to be like social security or 401k. 
  2. Portable benefits: providing a safety net that ensures basic safety net comprising of minimum hourly pay, collision insurance, workers’ compensation and reimbursement of other driver costs
  3. Forward thinking legislation: negotiations with unions and states to offer retraining programs for older generations or new skill learning so workers continue to upscale as well as gain benefits. 

upcover, as a new age insurtech startup, fits into the second category of the proposed alternatives. As we offer pay-as-you-go insurance and protection benefits for gig workers (currently only offering to delivery riders), upcover bridges the protection gap and is on the path to transform the way you work for good. 

About upcover

At upcover, we are committed to improving the safety of riders by providing support, resources and financial products to help them at work, at home and in between. upcover bridges the protection gap for the fastest growing workforce in Australia by providing the self-employed and independent contractors with the insurance protection and benefits they need.