🔍
Andrew Heaton Explains How California's AB5 Law Crushes Freelancers - YouTube
Channel: Pacific Legal Foundation
[0]
- Hello, I'm Andrew Heaton,
[1]
and today we're gonna talk about AB5,
[4]
the most unpopular thing in California
[6]
besides traffic congestion and R. Kelly.
[9]
Assembly Bill 5 is a state law
that outlaws freelance work
[12]
in a variety of situations,
[13]
and in an attempt to keep companies
[15]
from exploiting independent contractors.
[17]
The California Legislature doesn't think
[19]
independent contracting is fair,
[21]
and believes it's more important
[22]
to keep people from working,
[23]
than to let them work independently.
[25]
Between potential exploitation
or probable unemployment,
[28]
the California government
believes that your dignity
[31]
is more important than your livelihood,
[33]
and will happily intervene on your behalf
[36]
through force of law.
[37]
Say jobs are pizza, and
we want to talk about
[40]
how to get more good
pizza, and less bad pizza.
[43]
Well, first let's establish
[44]
that sometimes pizza
toppings are subjective.
[47]
I might like anchovies,
while pineapple and sausage
[50]
are enjoyed by sociopaths,
but that's fine.
[52]
Same with jobs, someone
who prefers stability
[55]
and predictability, might see
a freelance job as erratic.
[58]
We're paying too little,
[60]
but a freelancer might want
that job because it's flexible.
[63]
And there's another issue as well.
[65]
Say we're talking about second rate pizza.
[67]
Is it better to have no
pizza or stale pizza?
[72]
Well California has effectively said,
[74]
we don't like your pizza.
[76]
From now on, you have to make pizza
[78]
that reaches our standards,
or not make pizza at all.
[82]
We are banning mediocre pizza.
[84]
(explosion)
[85]
The problem is, you haven't
magically compelled all pizza
[88]
to be delicious.
[90]
All you've done is
outlawed the stale pizza.
[93]
So now instead of pineapple
and the sausage pizza,
[96]
we don't get any pizza at all.
[98]
There is less pizza to go around.
[101]
The California government has
effectively told freelancers,
[104]
we think the pizza you like
is beneath your dignity,
[108]
and we have decided you
should either starve
[110]
or find something else to
eat, but not that pizza.
[113]
And again, this is assuming
it's actually a bad pizza,
[116]
and not just control freaks,
trying to outlaw anchovies,
[119]
because they don't personally like them.
[120]
We fought the British
[122]
for our right to eat anchovies on pizza,
[125]
and we fought Antarctica
to steal those anchovies.
[128]
("National Anthem")
[130]
Have you ever met a polyamorous couple,
[133]
where one of the people's
really into open relationships,
[135]
but the other person's just
kinda going along with it,
[139]
but isn't particularly interested.
[141]
That's how California views
freelancer relationships.
[144]
The freelancer would
clearly rather get the perks
[146]
and benefits of a monogamous
corporate relationship,
[149]
but the skeezy company
holds all the cards.
[152]
Also, Janet, if you're
watching, I apologize.
[155]
I just want to be monogamous
with you now, call me.
[157]
♪ Baby come back ♪
[159]
AB5 passed in 2019 in
response to big companies
[162]
allegedly, or potentially,
taking advantage of freelancers.
[165]
The logic is companies would
rather pay their employees
[168]
less than more.
[170]
In order to pay them less,
they have cleverly labeled
[172]
the people who work for
them as freelancers,
[175]
so they don't have to pay for
their healthcare or vacation.
[177]
The big evil companies
the California government
[179]
had in mind were DoorDash,
[182]
which sounds like my primary
hobby in high school,
[185]
but is actually a company
[186]
that delivers take out to lazy people.
[189]
Uber, a ride-hailing company
[191]
that combines taxi cabs with smartphones.
[194]
I own a car, but I use Uber periodically,
[196]
when I've had too much to drink,
[198]
and when I want to get home safely,
[199]
like on St. Patrick's
day, or most of 2014.
[202]
And finally Lyft, which
is similar to Uber,
[205]
only with a wider range of smells.
[208]
AB5 requires companies that work with
[210]
independent contractors to
reclassify them as employees,
[213]
with associated payroll
taxes, employment regulations,
[217]
and sad, interoffice birthday parties,
[219]
which punctuate workers years
[222]
with a grim reminder of
their impending mortality.
[225]
Specifically, AB5 employs
a three-prong test
[228]
to determine if workers are
employees or contractors.
[231]
The test assumes contract
workers are, in fact,
[233]
actual employees, unless the
company can prove three things.
[237]
The worker is free to perform services
[239]
without the direction or
control of the company.
[241]
The worker is performing
work tasks that are
[243]
outside the usual course
[244]
of the company's business activities.
[246]
And the worker is customarily engaged
[248]
in an independently
established trade occupation,
[250]
or business, of the same nature
[252]
that involves the work performed.
[253]
So, for example, since Uber
and Lyft are ride-hailing apps,
[257]
cars are directly involved,
and the state of California
[259]
would presumably say, its
drivers are not performing
[262]
a miscellaneous freelancer activity,
[265]
outside of the company's normal business,
[267]
but are in fact employees.
[269]
Now Uber is saying, it's not
a transportation company,
[271]
it's a technology company,
[272]
which connects drivers and passengers,
[274]
but I doubt they can Matlock that position
[276]
through the courts.
[277]
So that's it, right?
[279]
The evil plutocrats who
own these big businesses
[281]
must now own up to their
employees, and pay them more,
[284]
instead of buying a hover yacht,
[287]
or drinking expensive
champagne on horseback,
[290]
or whatever rich people do.
[293]
I don't know Pilates and Latin, I guess.
[295]
But wait, AB5 doesn't end there.
[298]
If we require Uber and
Lyft to offer paid benefits
[301]
to all of their contractors,
stay with me here,
[304]
it increases the cost of doing business.
[306]
Most estimates say AB5 makes employees,
[308]
as opposed to contractors,
30% more expensive,
[312]
specifically, for these big
companies I mentioned earlier.
[314]
Unfortunately, despite our best efforts
[317]
at a staggering amount of legislation,
[319]
we've never been able to abolish
[321]
the law of supply and demand.
[323]
This tyrannical economic consensus means,
[326]
if we increase the cost of
labor, we also reduce the supply.
[331]
In other words, make
workers more expensive,
[334]
and companies will hire fewer of them.
[336]
When companies incur
costs, they almost always
[339]
pass those costs on to their
consumers or employees.
[342]
They don't take them on the chin.
[343]
And while you might think,
well CEOs should just eat it.
[346]
How many top hats do you need CEO?
[349]
The reality is this.
[350]
The government can mandate rules.
[352]
It can't mandate intentions.
[354]
You can use force of
law for a lot of things,
[356]
but you can't pass legislation
[358]
requiring someone to like people,
[360]
or to want less money, or to
get back with their ex-fiance,
[363]
because he learned his lesson
about throuples, Janet.
[365]
You can penalize or reward
things, but you can't write laws
[369]
changing people's internal motivations.
[371]
Using government mandates to
change people's intentions
[374]
is like trying to change the
weather by tweeting about it.
[377]
Say, you think CEOs make too much money,
[379]
compared to their lowest
earning employees,
[381]
and you want to make
things more egalitarian
[383]
through force of law.
[384]
So you raise taxes on the company,
[386]
thinking the company will start at the top
[388]
by reducing the CEO's salary.
[391]
Nope. They'll either
reduce paychecks elsewhere,
[394]
or they'll pass it on to the
consumer virtually every time.
[397]
So then, you pass a law saying CEOs
[400]
can only make 10 times more
[402]
than the lowest paid
employee in their company.
[404]
So the company just
fires all the janitors,
[408]
replaces them with Roombas,
[409]
and then fires all the secretaries,
[411]
and replaces them with phone Roombas.
[414]
So then, you pass a law
requiring CEOs to take a pay cut.
[420]
Okay, now the CEO moves
to an offshore island
[423]
along with their company.
[425]
Then what happens?
[427]
Well, if you remember sophomore English,
[429]
they hunt people for sport.
[432]
So good job.
[434]
I'm not saying you shouldn't pass laws,
[436]
because people would get around them.
[437]
Most states have prohibited
murder, for example,
[440]
and while some ne'er-do-well butlers
[442]
do keep slaying their masters,
[443]
overall, I'm in favor of anti-murder laws.
[445]
Again, my point is, you can use the carrot
[448]
and stick of government
to alter people's actions,
[451]
but you're never gonna change
their internal motivations.
[453]
Also, what if the affected companies
[456]
aren't run by greedy plutocrats,
[458]
and a "Blade Runner" spinoff?
[459]
What if they're just regular
people operating in a universe
[462]
relentlessly tyrannized
by math and economics.
[466]
For example, let's say your company
[468]
doesn't have a 30% profit margin,
[470]
even if it pulps and liquefies
the board of directors.
[473]
That would mean if your cost
of business jumps up by 30%,
[477]
you would simply go bankrupt,
[479]
in which case nobody gets a job.
[481]
Well done.
[483]
To avoid that, any company
with a thin net profit margin
[486]
would have no other option
[487]
than to raise prices for consumers.
[489]
Here, I'm gonna show you a diagram.
[493]
The good news is,
California is super cheap.
[496]
It's not at all a state
where average rent costs more
[499]
than a Nebraska law degree, or
gasoline prices are so high,
[503]
I just buy plastic jug vodka,
[505]
and hope my Toyota doesn't notice.
[507]
Even so, if you increase
the cost of something,
[510]
people are gonna consume less of it.
[512]
That's supply and demand.
[514]
When my neighborhood
cigars doubled in price,
[516]
I started purchasing half as many,
[518]
and stealing twice as much.
[521]
If companies increase their prices by 30%
[523]
the ones with low net profit margins
[525]
will flat go out of business,
[527]
like that cigar shop that prosecuted me.
[529]
Others will press on,
[531]
but people will buy less of their stuff,
[533]
and there's a good chance
you're gonna get fired anyway.
[535]
If a company is looking to
save costs on employees,
[538]
it's gonna be cheaper to fire
several part-time freelancers
[541]
and hire a small squadron of full-timers,
[544]
or specialty Roombas.
[546]
Hope you make the cut.
[548]
And in fact, that's
exactly what's happened.
[550]
Vox Media, which is not
exactly a conservative bastion
[554]
of right-wing punditry,
fired 200 freelancers
[556]
as a direct result of AB5,
and hired in their place,
[561]
20 full-time employees.
[563]
In response to the variety of situations
[565]
in which effectively
outlawing freelancers,
[567]
has had the baffling effect
of hurting freelancers,
[570]
AB5's author, Lorena Gonzalez said,
[572]
"These were never good jobs.
[574]
No one has ever suggested
that, even freelancers.
[576]
We will continue to
work on this next year."
[579]
Okay, listen, can you
let me, the freelancer,
[584]
make the call on whether
my job is crappy or not.
[586]
As someone who has voluntarily worked
[588]
for a variety of freelance gigs,
[590]
please let the guy whose
job you might abolish
[593]
determine whether the gig is
beneath my dignity or not.
[596]
I would like to be in charge
[597]
of whether I eat what you
consider bad pizza, or I starve.
[601]
I should get to make that decision.
[603]
A lot of people, again,
like myself for real,
[606]
actually enjoy doing freelance work.
[608]
I've been a cog in a corporation before,
[610]
and I'd rather make less
money working on my own.
[612]
For example, while the
Pacific Legal Foundation
[614]
produced this video,
I'm not their employee,
[617]
nor do I want to be.
[618]
If I worked for PLF, they'd
make me wake up before 11,
[622]
and commute to an office, put
on pants once I got there,
[626]
and they probably wouldn't
even let me bring my dog.
[629]
And if I did bring my dog, they'd say,
[630]
"Hey, you don't own a dog.
[633]
Heaton, did you steal a dog again?"
[635]
No thank you.
[637]
I'd rather take the pay
cut and be my own boss.
[639]
And for the record, that's just me.
[641]
Many people who are
more talented than I am,
[643]
actually make more money
[644]
working for themselves than a corporation,
[647]
which I get to hear about
every single Thanksgiving.
[650]
Way to go Marty.
[652]
Point is, a lot of us just
enjoy being freelancers.
[655]
We're not clamoring to be employees.
[657]
When polled, Uber and Lyft drivers
[659]
consistently ranked flexibility
[661]
as the top reason they
contract with those companies.
[663]
When you're an employee of a company,
[664]
you don't always get to tell your boss,
[666]
"Hey, I had a pretty busy weekend,
[668]
so I'm gonna take Monday off,
[670]
but I'm gonna work a double on Tuesday.
[671]
Whereas with freelancing,
[672]
you work as much as you want or need to.
[675]
Spencer Grant is 75-years-old,
[676]
and works as a freelance photographer.
[679]
Normally, he relies on
income by selling photographs
[681]
to the LA Times, often
up to a hundred per year.
[684]
However, he's been informed
that because of AB5,
[687]
the Times will only buy 35 of his photos.
[690]
If they bought any more than 35,
[691]
they would be required to
hire him as an employee,
[693]
which they're not gonna do.
[695]
So in an effort to protect freelancers
[697]
from being taken advantage of,
[698]
California has reduced his income by half.
[702]
He could try to get a job
working as a staff photographer,
[705]
but he has some doubts that companies
[707]
will want to invest
resources in a 75-year-old.
[710]
And in any case, he
prefers being a freelancer,
[713]
because he's a full-time
caregiver to his wife,
[715]
which requires flexibility.
[717]
In fact, the American Society
of Journalists and Authors
[720]
has filed a suit against this law,
[722]
because their members have
built thriving careers
[724]
as freelancers, but AB5
limits the amount of work
[727]
they can do for any one
publisher to 35 gigs.
[730]
After that, they either
have to hire freelancers
[733]
as employees, or more likely,
just quit buying our stuff.
[738]
Because again, in the state of California,
[740]
there is a legal cap as to
how much work you can do
[743]
as a freelancer.
[745]
Have you ever met a musician?
[747]
Your average guitar
player doesn't go to work
[749]
at The Jazz Factory.
[751]
And yes, I'm aware
there's almost certainly
[753]
a overpriced LA bar
called The Jazz Factory.
[756]
You know what I meant.
[757]
My point remains,
musicians work piecemeal.
[760]
They do gigs for a variety
of different places.
[762]
They don't just work one spot.
[764]
So if you're going to limit
musicians, which again,
[767]
are unlikely to be hired
as full-time performers
[769]
at one specific venue,
[771]
because we don't live in
a broke patronage system,
[774]
you're going to hurt musicians.
[776]
Brendan Rawson is the
Director of San Jose Jazz,
[779]
which I thought was a basketball team,
[781]
until convinced otherwise.
[782]
He's worried that because
AB5 requires music venues
[785]
to designate members of
any act performing there,
[788]
even once, as official
employees of the venue itself,
[791]
AB5 might well bankrupt music venues,
[793]
and that enforcement will still
wreck plenty of freelancers
[796]
and businesses all the same.
[797]
The Contra Costa Musical Theatre,
[798]
a 59-year-old community theater group,
[801]
had to shutter because
AB5 would require it
[803]
to classify stagehand
and actors as employees,
[807]
which it couldn't afford.
[808]
The Lake Tahoe Music
Festival is shutting down
[810]
after 40 years, because of AB5.
[814]
Well done California,
[815]
protecting freelancers like me,
[817]
from festivals and musical theater.
[820]
I don't need protection from
musical theater, thank you.
[822]
I was in a Gilbert and
Sullivan based street gang
[825]
in my youth, and we were quite capable
[828]
of protecting ourselves.
[828]
♪ On the whole buggin',
ever lovin' street ♪
[834]
If you were a writer, or
a freelance photographer,
[836]
or a trucker, you might
be able to get around AB5
[839]
by operating as your own
business, which has some perks.
[842]
Seems to me, if I'm a business
instead of an individual,
[845]
I could finally upgrade
from Tinder to LinkedIn.
[849]
Do keep in mind, however, that
you might face difficulties
[852]
qualifying as a business.
[854]
The business to business exception in AB5
[856]
has 12 factors that have to be met.
[858]
That's on top of the 21 factors
already required by the IRS.
[863]
And by the way, if you're a writer,
[865]
or a social media person,
[866]
or any sort of freelancer in California,
[869]
and you want to do work for
companies in saner states,
[872]
they might just skip over
your application altogether
[874]
to not deal with the headache of AB5.
[877]
We should judge policies by their effects,
[879]
not their intentions.
[882]
The intentions behind AB5 are good.
[884]
The authors want to protect the little guy
[886]
from getting taken advantage of,
[887]
or exploited by corporations.
[889]
But while we can give people
credit for their intentions,
[892]
we should assess policies
based on their outcome.
[895]
In the same way that you
can't use the government
[897]
to change other people's
intentions, only their actions,
[900]
we need to judge government
policies by their actions
[903]
and not their intentions.
[905]
Governance is complicated.
[906]
Lots of well-meaning
rules, from decent people,
[908]
result in unintended consequences,
[911]
but citizens only get to
deal with the consequences
[914]
of those laws.
[915]
They can't deposit
intentions in their bank
[917]
in place of jobs.
[918]
So while a given rule might feel good,
[921]
because it's taking a swing
at somebody we don't like,
[923]
or it's addressing a
problem we care about,
[925]
we have to assess it based on
the outcome, not the intent.
[930]
I don't fault the intention of AB5.
[932]
Wanting to protect the little
guy from getting pushed around
[935]
by a heartless corporation
is a good sentiment,
[937]
but that's not the outcome of the bill.
[939]
The outcome of the bill is that
freelancers lose their jobs,
[943]
lose hours, and lose income.
[945]
And if a bill is designed
to protect freelancers,
[948]
but the available data shows
that it winds up hurting them,
[951]
we need to take a deep breath,
eat some anchovy pizza,
[955]
and start over.
[956]
(upbeat music)
[961]
From Pacific Legal
Foundation, I'm Andrew Heaton.
[963]
Thanks.
[963]
(upbeat music)
[968]
Hey, my pizza Roomba's here.
[971]
Thanks little buddy.
[972]
(upbeat music)
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