California Law to rebuild middle class shows need for congressional action

California Law to rebuild middle class shows need for congressional action
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California’s new law aimed at requiring employers to pay basic benefits to so called “independent contractors” is a welcome effort to stop employers from ripping off working people. 

But Uber’s swift reaction — that the law doesn’t apply to Uber drivers — emphasizes why the next president and Congress need to take a more comprehensive approach to assuring that all working people get the basic, middle-class benefits that are fundamental drivers of economic growth. 

The California law attempts at closing a loophole that allows a range of companies – not just gig employers like Uber and Doordash, but companies that employ truck drivers, janitors and a host of other working people — to classify employees as independent contractors. By doing so, the companies avoid complying with basic labor and social insurance protections, like minimum wage, overtime, Social Security, workers compensation and unemployment insurance. 


The new law, AB 5, requires a company to define someone as an employee, rather than a contractor, if the person does work that is part of the company’s regular business or the company exerts control over how a task if performed. 

The company also must show that the person “is customarily engaged in an independently operated” business or trade. Uber promptly asserted that the law doesn’t apply to them because, “… drivers’ work is outside the usual course of Uber’s business, which is serving as a technology platform for several different types of digital marketplaces.” 

The dispute over definitions, which will result in a sea of litigation, underscores that the new law is playing within the lines of current federal law. Labor law makes a fundamental distinction between employees and independent contractors.

But in today’s economy, employers have turned what might have been a common-sense distinction in the 1930s into a giant loophole to avoid providing working people with basic benefits and protections. 

One reason for decades of anemic wage growth is that employers have used a variety of tactics to drive down the cost of employing people for a host of what had been middle-class jobs. It’s not just the taxi-drivers replaced by Uber and Lyft. 


It’s truck drivers who deliver packages and haul goods around ports or cross country and are called independent contractors. It’s warehouses staffed by temp workers, whose jobs remain temporary forever. Retailers and fast-food companies keep hours down so as not to trigger obligations to contribute to health care or offer family leave, and to avoid giving many of their employees benefits like retirement, paid sick leave and vacations they give more high-wage employees. 

But whatever the mechanism, the goal is the same: manipulate the labor laws to avoid paying the benefits that provide working people with decent wages and benefits, time off to care for their families and some measure of economic security and stability. In doing so, the companies shift their profits from a big chunk of their workforce to highly-paid employees, management and shareholders. 

That’s more than just unfair; it’s lousy economics for the nation as a whole and in the long-run for the companies themselves. These practices result in slower economic growth overall by reducing consumer purchasing, which makes up 68 percent of our economy

Instead of a robust economy driven by a strong middle class, we get what we have today: very low economic growth and widespread financial insecurity. And an even more widespread and fully justified belief that the economy and government only work for the wealthy and CEOs. 

The solution is to make every job a middle-class job, regardless of how it is legally structured. Employers should be required to pay basic wages and benefits when they ask someone to do work for them, whether that work be full or part-time, as an employee or as a contractor. In short, update the fundamental contract between employer and working person to meet the 21st century economy. 

The odd-couple of billionaire entrepreneur Nick Hanauer and labor leader David Rolf laid out a proposal to accomplish that in Democracy Journal, which I summarized in 2016. As I wrote then, “The breakthrough innovation in the proposal is establishing a Shared Security Account for every worker. Each employer would pay the share of benefits earned by each worker into those workers’ accounts based on a 40-hour week. In other words, an employer would pay all the benefits for a full-time employee while paying half the benefits for someone who works for that employer 20 hours a week.”

In Congress, Virginia Sen. Mark WarnerMark Robert WarnerHillicon Valley: Facebook removed over 22 million posts for hate speech in second quarter | Republicans introduce bill to defend universities against hackers targeting COVID-19 research | Facebook's Sandberg backs Harris as VP pick Republicans set sights on FBI chief as Russia probe investigations ramp up The Hill's Campaign Report: US officials say Russia, China are looking to sow discord in election MORE (D) and Washington Rep. Susan DelBene (D) have introduced legislation (S. 541 and H.R. 4026) to establish pilot programs for states to test implementing ways to make benefits portable for independent workers such as contractors, temporary workers and self-employed workers.

If shared security and portable benefits were federal law it would remove all the game-playing that companies use to avoid paying decent wages and benefits to the people who do the work the company needs doing. It would go a long way to making every job enough to care for and support a family and rebuild the middle-class that is the engine of our nation’s economy. In doing so, it would give us a labor law that is a foundation for prosperity in the 21st century economy.

Richard Kirsch is the director of Our Story: The Hub for American Narratives, and advisor to Civic Ventures (founded by Nick Hanauer) and the author of "Fighting for Our Health: The Epic Battle to Make Health Care a Right in the United States." Follow him on Twitter@_RichardKirsch.