US election: California’s AB5 employment legislation is Democratic gift to Donald Trump

Former vice-president and Democratic presidential nominee Joe Biden (L) and Senator from California and Democratic vice presidential nominee Kamala Harris.

Just as the ALP franking credits disaster played a huge role in delivering the prime ministership to Scott Morrison in 2018, Donald Trump has a similar weapon to use against Joe Biden and Kamala Harris – the so called “AB5” threat.

And while “AB5” is not currently among the frontline Trump campaign issues like law and order, it has the potential to devastate Biden and Harris.

AB5 refers to a Californian law championed by Harris. It was designed as a way to get rideshare companies like Uber and Lyft to classify all their contract drivers as employees. To do this, via AB5 legislation, the state restricted contract work over a wide area, including restricting the rights of large numbers of journalists, IT workers and tradespeople to work as contractors. Instead they had to be employees. Biden and Harris plan to extend the California law around the nation.

As you would expect, AB5 has reduced employment in California. Nationally the US unemployment rate is 10.2 per cent but the Californian rate is 14.9 per cent. Not all of that difference will be caused by AB5, but if California had matched the rest of the country in employment then American unemployment would have been far lower.

And, apart from the impact of the US presidential race on Australia, we have a special interest in AB5 because Victoria is considering following California irrespective of the consequences to employment and income generation.

Making a bad law worse

In California, the state governor reacted to some of the consequences of AB5 and added exceptions to the restricted rights of people deemed to be contractors.

But, if anything, the changes made the law even worse. For example, the original law limited freelance journalists to no more than 35 articles a year for a single publication. This ban was removed but the removal was only lifted for written articles so video reports are still restricted to a quota.

These days many freelance journalists are expected to work across different types of media, and under the amended AB5 they still can’t legally work for their clients.

For IT companies it was relatively easy: they went elsewhere for their software and other contract work.

California’s AB5 legislation, designed to give ride share drivers the same rights as employees, could become a presidential election issue. Picture: Getty Images

But shifting out of California is not as easy for tradespeople and the original targets of the laws: Uber and Lyft.

Using the AB5 legislation, California went to the courts alleging that Uber and Lyft misclassified workers as contractors and were unfairly withholding pay and benefits from them.

Uber and Lyft have maintained they are technology providers and that drivers who use their platforms are independent contractors. Uber threatened to shut down in California if it lost the case. A California appeals court ruling has avoided that shutdown, effectively allowing a decision to be decided by a special Californian ballot measure in November.

End of the gig economy

Influential Republican congressman for California, Kevin McCarthy, says AB5 is destroying California’s gig economy and the law has encouraged companies to move their businesses out of the state.

But just as it took the Liberals a long time to wake up to the electoral power of franking credits, so far Trump has not launched an attack on Biden and Harris over AB5. He may be waiting for the debates.

Trump could follow Australia in any US independent contracting proposals. Our law states state that if a person makes an arrangement to undertake a task for remuneration, and that arrangement gives all the control over hours, times of work, and locations to the receiving enterprise, then it’s an employment relationship. It’s covered by the employment rules.

If, on the other hand, the person performing the task has a choice as to whether to accept the work and, where appropriate, to be able choose when the work is done and how a task is carried out, then it is a contracting relationship.

US Democratic presidential nominee Joe Biden and vice presidential nominee Kamala Harris. Picture: Getty Images

Usually in contracting you can do work for others and often provide your own tools.

Accordingly in Australia, the Uber system of distribution has been declared contracting and not employment, partly because of the freedom Uber drivers have to accept or reject work on offer.

The Victorian committee report looking at the gig economy recommends the Commonwealth abandon the common law test for self-employment and replace it with a new test called the “entrepreneurial test”. Exactly how this test would be worded is not spelt out. But if it follows the original Californian AB5 legislation, the whole gambit of self-employment would be covered.

Despite its recommendation, the committee discovered how Australians were using independent contracting to their benefit. The report conducted a national survey of 14,000 people which discovered that 7.1 per cent were currently doing gig work but of that 7.1 per cent, just 2.7 per cent had gig work as their full-time income.

So just 0.19 per cent of the total Australian workforce uses the gig economy for their full time income.

The report shows that workers use the various “gig” platforms and the choice of contracting available to work around other commitments to gain additional opportunities to generate income.

Almost certainly that will be the case in California.

But given the widespread belief that it robs people of benefits Trump must determine whether AB5 is a “franking credits” issue.