California workers blame new labor law for lost jobs. Lawmakers are scrambling to fix it

The Sacramento Jazz Cooperative is a struggling nonprofit, operating on a shoestring budget during its three-year history as it presents Monday night concerts at the Dante Club. Now it has another problem on its hands - a controversial California labor law that requires it to hire musicians as employees.

Since Jan. 1, the jazz co-op has had to contribute to musicians' Social Security and Medicare, while withholding payroll taxes from their checks. Founder Carolyne Swayze said the law is proving costly to the co-op and threatens its viability, potentially hurting musicians.

“I'm not sure if we can hang in there,” she said. “It might be different if we were in Chicago or LA or New York.”

The new law, Assembly Bill 5, has generated outrage from a wide range of Californians, from musicians to therapists to truckers and freelance journalists.

Petaluma resident Jeff Sherman said AB 5 cost him his job as a court transcript editor and has also affected his other occupation, as a bass player.

It requires businesses to classify more workers as employees entitled to benefits like sick leave and overtime pay. But some workers affected by AB 5 say it's caused them nothing but grief and anxiety. One online media company, Vox, parted ways with 200 freelance journalists rather than hire them as full-fledged employees.

Critics of the law are fighting back. Some have gone to court. Uber has vowed to challenge the law at the ballot box - while also changing its ride-hailing platform in an effort to have its drivers remain classified as independent contractors instead of employees.

Supporters of the law say AB 5 extending benefits to “gig economy” workers means more of them are being treated fairly. But it's having unintended consequences for organizations such as Swayze's, leaving lawmakers scrambling this year to change the law.

“Even when we passed the bill, we knew there were outstanding issues,” said Assemblywoman Lorena Gonzalez, the San Diego Democrat who wrote the law. “We're continuing to take feedback and listen to folks.”

Changes planned

The music industry is one that needs some relief the new law, but there's not yet agreement about what that should look like, Gonzalez said. Freelancers are suing over a limit on how many pieces they can write for a publication, which they argue violates the First Amendment.

Even as Gonzalez wants to tweak AB 5, she and fellow Democrat Assemblywoman Christy Smith of Santa Clarita have a plan to spend $20 million in state funding to create grants that would support small arts nonprofits trying to comply with the law. Gov. Gavin Newsom is proposing a separate $21.5 million in the budget to boost compliance and ramp up enforcement of the law through the state's justice department and labor agency.

Swayze said paying for unemployment insurance, workers' compensation and other benefits has increased the jazz co-op's costs by 15 percent - a significant hit for an organization that runs on $85,000 a year in donations and ticket sales. She's been reluctant to book any shows beyond March.

“It's kind of a mess. The musicians aren't happy campers,” she said.

Joe Mazzaferro, leader of a septet that performed for the Jazz Cooperative last month, said the withholding reduced his band's pay for the night by about $20 per member.

“It was a little frustrating, to say the least. We musicians, we expect we're going to be making a certain amount,” he said, adding that he's afraid nightclubs will start cutting back on the musicians they hire to save money - opting for a trio instead of a larger band, for instance.

Arguments over flexibility

Mazzaferro said his concerns about AB 5 are also a matter of principle.

“I feel like it's our right to work as we choose,” he said. “We really need that ability to negotiate not just our time but what we're being compensated.”

Many truckers have made a similar argument about the law, saying it inhibits their ability to do business. The California Trucking Association secured a court injunction blocking implementation of AB 5 in its industry, after it argued the law is preempted by the US Constitution because it interferes with interstate commerce.

Placerville resident Lacey Easton says she's lost work as a professional sign-language interpreter because of AB 5. She's down to about 15 to 20 hours of work “in a good week.”

“More importantly, deaf and hard of hearing people have lost access to communication,” said Easton, who does interpreting for schools, job-training agencies and medical appointments.

She said flexibility is extremely important in her profession; that's why she's resisted going to work for a company as an employee. Interpreters have to be “compatible” with the person they're signing for, and if she's an employee she'd lose the ability to turn down a job.

On the other hand, Bill Glasser, who runs a Sacramento interpreting company called Language World Services, says AB 5 has been good for business.

That's because he made his workers employees more than a decade ago after he was audited by the state and found out of compliance with California's previous labor law. Now, he employs more than 200 interpreters who provide services for hospitals, schools, social work and law enforcement.

Glasser provides his employees with sick leave, workers' compensation and other benefits, he said. That's important if they get sick interpreting for patients at medical appointments, he said. It also gives him more control to ensure his employees are qualified and doing high-quality work.

But all of that costs money, which is why he welcomes AB 5 for leveling the playing field by forcing his competitors to play by the same rules.

“We appreciate the fact that the state is recognizing the unfair competition for those agencies that follow the rules and pay the taxes,” he said.

Uber's bet

Uber, one of the most visible symbols of the gig economy, is reacting with a measure of defiance - and an attempt to show its drivers truly are independent.

The company, along with Lyft, DoorDash, Instacart and Postmates, is pouring tens of millions of dollars into a proposed ballot initiative that would allow it to continue classifying drivers as independent contractors. Spokesman Davis White said Uber isn't withholding any payroll deductions from its drivers' compensation. Uber also joined food-delivery company Postmates in suing to block implementation of the law.

At the same time, Uber has changed its platform as a way of trying to work around AB 5.

Its 150,000 California drivers now have the freedom to choose which rides they accept; previously, they had to pick up a customer without knowing the destination. And in late January, Uber launched a pilot project at the Sacramento, Santa Barbara and Palm Springs airports that lets drivers set their prices. The Uber app matches passengers with the driver offering the lowest fare.

“It's to increase their ability to control how they earn, and the information that is displayed to them (about destination),” White said. “It is in response to AB 5.”

What's next

Gonzalez says she hears every day from workers and employers who benefit from the law. The assemblywoman rattled off a list of people who have thanked her for forcing their companies to treat them as employees, including an IT worker at the University of California, San Diego, who now has regular hours, and a political campaign worker who now gets lunch breaks.

Gonzalez says she plans to propose specific changes to the law in the coming weeks.

Some Republicans want to go further than that.

Sen. Brian Jones, R-Santee, introduced a bill to exempt the music industry. Assemblyman Kevin Kiley, R-Rocklin, introduced a bill to repeal the entire law. At a rally at the Capitol attended by more than 100 AB 5 opponents, Kiley blasted the law, saying it has already devastated many careers.

“Perhaps never in our history has a legislative enactment so shattered the lives of so many people,” Kiley said.

Petaluma resident Jeff Sherman, who attended the rally, said AB 5 cost him his job as a court transcript editor. After the law took effect, the court reporter he worked for couldn't afford to hire him as an employee.

The new law has also affected his other occupation, as a bass player. One band he works with has hired him and his band mates as employees - forcing the bandleader to charge $650 more per gig. Sherman's afraid that will drive away business.

“The phone's not going to ring,” Sherman said. “They're going to hire DJs. It's really going to hurt us.”

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