AB-5 is ‘Cannon Aiming at Mosquito,’ IFA Lobbyist Says
There are media circuses, and then there’s the extravaganza of grandstanding surrounding the passage September 11 of Assembly Bill 5 in California.
That’s also known as the new law designed to bust up the business models of Uber, Lyft, food delivery services like DoorDash and—according to the International Franchise Association—franchising as we know it as collateral damage.
Jeff Hanscom heads up state government lobbying for the IFA, and he led a coalition of California-based franchise owners and brands to testify against AB-5 in August, and also delivered a letter asking for franchises to be exempt from the new law.
AB-5 applies the so-called ABC test for classifying workers as independent contractors rather than employees; franchisees would be among those (like Uber and Lyft drivers) who would fail that three-pronged test, Hanscom said.
“IFA members are gravely concerned that, if enacted as currently drafted, AB-5 could mean the death of the franchise model in California, with devastating economic consequences,” the letter said, in typically dramatic fashion.
But the drama went well beyond the letter, Hanscom told me during a brief interview in Washington, D.C., on Tuesday, September 10, a day before the California bill passed in the state Senate and Assembly.
Big-rig trucks roared around the Capitol in protest of the new rules, while loud groups of Uber and Lyft drivers shouted slogans (mostly) in support. Multiple types of businesses asked for exemptions in the past several weeks, but only a few received one. Uber said after the bill’s passage the company would continue to classify its drivers as independent contractors regardless, and Uber, Lyft and Doordash said earlier they’d pledge $90 million on a ballot initiative next year that would exempt them from AB-5.
“AB-5 is—call it a cannon aiming at a mosquito,” Hanscom said, explaining a bill ostensibly meant by its supporters to improve the working conditions of drivers in the gig economy is in fact affecting multiple industries. “I think organized labor knows” other groups will be affected, including franchising. “They fully know” franchisees won’t meet the three-pronged ABC test that would let them be classified as independent business owners.
Hanscom said about 24 other states have ABC tests for use in classifying workers, but the others are very narrowly defined. “Whereas California is broad. Every labor law falls under” the newly passed bill as of January.
I asked Hanscom whether the predictions of doom for franchising in California were exaggerated. “Is the sky really falling?” he said, acknowledging that when the Browning-Ferris decision came out in 2015, holding franchisors as joint employers along with their franchisees, similar predictions of doom were made. Yet “clearly there are still franchises,” he acknowledged.
“On January 1 when AB-5 becomes the law in California, every franchisor won’t close their doors. But will it be that much more expensive to operate in California?” Will the franchisor-franchisee relationship be further damaged? Will litigation—said by IFA research to be up 93 percent since Browning-Ferris, continue to rise, he asked, indicating he believes the answer is yes. “There are all these things that are now unknown.”
Hanscom said the IFA will continue to press legislators for changes in the final California law. “There’s been an acknowledgement that there is an issue with ABC and franchising,” he said, but the acknowledgement of a problem and the political will to clean it up are not the same thing.
He also noted the amount of money Uber, Lyft and others have pledged to fight the measure, and he said he wouldn’t surprised if some party files a lawsuit challenging the law on January 2 next year. “This conversation isn’t over when the governor signs” the bill, said IFA’s communications chief Stephen Worley.
In other words, let the circus continue.