word collage about gig jobsEmployers will soon be confronting a colossal employee turnoverissue that, by design, they never considered as they had a nearlyendless supply of available gig workers.(Photo:Shutterstock)

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There's no denying that the gig economy is thriving. Much of this growth isdriven by both massively well-funded private companies as well aspublic tech giants that are capitalizing on an unprecedented era ofconsumer demand for convenience, no matter the goods or services.As a result, more than 57 million Americans—35 percent of the U.S.workforce—performed freelance or gig work in 2019, contributing anestimated one trillion dollars to the overall economy.

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With the introduction of third-party apps that enlistindependent contractors to facilitate rides, deliveries, dog walks,grocery shopping and numerous other on-demand services, manyfreelancers are able to join the gig economy with ease. Similarly,many businesses are able to capture new customers by joining theseplatforms. It all seemed to fit together nicely—until recently,that is.

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Related: Side gigs make up growing share of Americans' worklives

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Along with the freshly signed California Assembly Bill 5, the current stateof the gig economy as we know it has been flipped upside down – andgig workers and employers should be prepared for major changeahead.

Assembly Bill 5: So what is it really?

Following months of deliberation and debate, Assembly Bill 5 (orAB 5) has been officially signed into law by California GovernorGavin Newsom. The law took effect January 1, 2020 and reclassifiesmany independent contractors as employees, and in turn, forces gigeconomy companies to offer rudimentary labor rights like minimumwage, overtime and paid leave to their workforce.

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This is a significant measure that many gig workers have longbeen advocating for. However, there are also many workers whojoined the gig economy purely for the flexibility it offers, and AB5 will minimize this perk.

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For instance, as the business model currently stands in statesother than California, drivers for third-party delivery apps havethe freedom to pick up and deliver food, whenever their schedulesallow, for a quick buck. They also aren't restricted to a minimumor maximum number of hours they can work per week. While a handfulof gig workers seem to value benefits over flexibility, AB 5 iscause for concern for those who preferred independent contractorstatus.

What employers can expect

The gig economy workforce isn't the only group who will feel therepercussions of AB 5. In fact, gig economy giants are the ones whotruly need to prepare for disruption in California, which willlikely have a negative impact on their wallets. AB 5 will force theplatforms, which flew under the radar for years, to reclassifytheir contractors as direct employees, which isn't cheap.

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When faced with inquiries about whether or not popular gigeconomy companies such as Grubhub and Caviar have plans to complywith AB 5 and reclassify their workforce, most platformsdidn't respond.

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This deafening silence could be the result of any number ofreasons, including that they haven't yet figured out a loopholethat would exempt them from adhering to AB 5. For instance, Uberhas previously stated that while it intends to follow AB 5, theride-sharing giant will continue its attempts to prove that itdoesn't fall under the law's legal framework. While others, likeDoorDash and Lyft (who have banded together with Uber to spend $90million to lobby for alternative regulation) took on a decidedlymore oppositional stance and have expressed "disappointment" asthey determine how to rectify regulation with their businessmodels.

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In addition to increased labor costs, employers are now facedwith compliance risks, as many race to implement processes andprocedures that they had previously never gave a moment of thoughtto. Further, employers will soon be confronting a colossal employee turnover issue that, by design, theynever considered as they had a nearly endless supply of availablegig workers.

The ripple effect for gig workers

While proponents of AB 5 are quick to use labor-friendlyarguments focused on paid time off, health benefits and workerscompensation – which are all fantastic and worth celebrating –there are some glaring points they refuse or fail to address,namely flexibility and competition. Ask a gig worker their favoritepart of this economy and one of the first words they utter will beflexibility or freedom. The ability to set one's hours and adjustfrom day-to-day or week-to-week is a foundational tenet of gigwork, and it is one of the main reasons 35% of the U.S. workforcehas sought out gig work in some form.

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Another important part of the gig economy is fair and opencompetition, or more clearly the equation of time invested tocompensation, and AB 5 muddies those waters. In fact, a federaljudge just recently granted truck drivers an injunction so thatthey could remain exempt of AB 5, as they argue it encroaches ontheir interstate commerce rights. Meanwhile, California journalistshave been extremely vocal about the impact AB 5 will have on theirability to earn living wages, as the new law limits a journalist to35 submissions a year for a single publication. As the journalismindustry continues to rely on freelance contribution over moreexpensive full-time staff, journalists are arguing AB 5disproportionately impacts them.

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With the new law not yet a month old, there remains muchuncertainty on exactly what the future holds for gig workers andemployers alike. What is certain though, is that we are now in anew era of human capital management, and everyone is embarking on aDarwinistic path of adaptation.

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Scott Absher is co-founder and CEO ofShiftPixy.


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