- Hello, I'm Andrew Heaton, and today we're gonna talk about AB5, the most unpopular thing in California besides traffic congestion and R. Kelly. Assembly Bill 5 is a state law
that outlaws freelance work in a variety of situations, and in an attempt to keep companies from exploiting independent contractors. The California Legislature doesn't think independent contracting is fair, and believes it's more important to keep people from working, than to let them work independently. Between potential exploitation
or probable unemployment, the California government
believes that your dignity is more important than your livelihood, and will happily intervene on your behalf through force of law. Say jobs are pizza, and
we want to talk about how to get more good
pizza, and less bad pizza. Well, first let's establish that sometimes pizza
toppings are subjective. I might like anchovies,
while pineapple and sausage are enjoyed by sociopaths,
but that's fine. Same with jobs, someone
who prefers stability and predictability, might see
a freelance job as erratic. We're paying too little, but a freelancer might want
that job because it's flexible. And there's another issue as well. Say we're talking about second rate pizza. Is it better to have no
pizza or stale pizza? Well California has effectively said, we don't like your pizza. From now on, you have to make pizza that reaches our standards,
or not make pizza at all. We are banning mediocre pizza. (explosion) The problem is, you haven't
magically compelled all pizza to be delicious. All you've done is
outlawed the stale pizza. So now instead of pineapple
and the sausage pizza, we don't get any pizza at all. There is less pizza to go around. The California government has
effectively told freelancers, we think the pizza you like
is beneath your dignity, and we have decided you
should either starve or find something else to
eat, but not that pizza. And again, this is assuming
it's actually a bad pizza, and not just control freaks,
trying to outlaw anchovies, because they don't personally like them. We fought the British for our right to eat anchovies on pizza, and we fought Antarctica
to steal those anchovies. ("National Anthem") Have you ever met a polyamorous couple, where one of the people's
really into open relationships, but the other person's just
kinda going along with it, but isn't particularly interested. That's how California views
freelancer relationships. The freelancer would
clearly rather get the perks and benefits of a monogamous
corporate relationship, but the skeezy company
holds all the cards. Also, Janet, if you're
watching, I apologize. I just want to be monogamous
with you now, call me. ♪ Baby come back ♪ AB5 passed in 2019 in
response to big companies allegedly, or potentially,
taking advantage of freelancers. The logic is companies would
rather pay their employees less than more. In order to pay them less,
they have cleverly labeled the people who work for
them as freelancers, so they don't have to pay for
their healthcare or vacation. The big evil companies
the California government had in mind were DoorDash, which sounds like my primary
hobby in high school, but is actually a company that delivers take out to lazy people. Uber, a ride-hailing company that combines taxi cabs with smartphones. I own a car, but I use Uber periodically, when I've had too much to drink, and when I want to get home safely, like on St. Patrick's
day, or most of 2014. And finally Lyft, which
is similar to Uber, only with a wider range of smells. AB5 requires companies that work with independent contractors to
reclassify them as employees, with associated payroll
taxes, employment regulations, and sad, interoffice birthday parties, which punctuate workers years with a grim reminder of
their impending mortality. Specifically, AB5 employs
a three-prong test to determine if workers are
employees or contractors. The test assumes contract
workers are, in fact, actual employees, unless the
company can prove three things. The worker is free to perform services without the direction or
control of the company. The worker is performing
work tasks that are outside the usual course of the company's business activities. And the worker is customarily engaged in an independently
established trade occupation, or business, of the same nature that involves the work performed. So, for example, since Uber
and Lyft are ride-hailing apps, cars are directly involved,
and the state of California would presumably say, its
drivers are not performing a miscellaneous freelancer activity, outside of the company's normal business, but are in fact employees. Now Uber is saying, it's not
a transportation company, it's a technology company, which connects drivers and passengers, but I doubt they can Matlock that position through the courts. So that's it, right? The evil plutocrats who
own these big businesses must now own up to their
employees, and pay them more, instead of buying a hover yacht, or drinking expensive
champagne on horseback, or whatever rich people do. I don't know Pilates and Latin, I guess. But wait, AB5 doesn't end there. If we require Uber and
Lyft to offer paid benefits to all of their contractors,
stay with me here, it increases the cost of doing business. Most estimates say AB5 makes employees, as opposed to contractors,
30% more expensive, specifically, for these big
companies I mentioned earlier. Unfortunately, despite our best efforts at a staggering amount of legislation, we've never been able to abolish the law of supply and demand. This tyrannical economic consensus means, if we increase the cost of
labor, we also reduce the supply. In other words, make
workers more expensive, and companies will hire fewer of them. When companies incur
costs, they almost always pass those costs on to their
consumers or employees. They don't take them on the chin. And while you might think,
well CEOs should just eat it. How many top hats do you need CEO? The reality is this. The government can mandate rules. It can't mandate intentions. You can use force of
law for a lot of things, but you can't pass legislation requiring someone to like people, or to want less money, or to
get back with their ex-fiance, because he learned his lesson
about throuples, Janet. You can penalize or reward
things, but you can't write laws changing people's internal motivations. Using government mandates to
change people's intentions is like trying to change the
weather by tweeting about it. Say, you think CEOs make too much money, compared to their lowest
earning employees, and you want to make
things more egalitarian through force of law. So you raise taxes on the company, thinking the company will start at the top by reducing the CEO's salary. Nope. They'll either
reduce paychecks elsewhere, or they'll pass it on to the
consumer virtually every time. So then, you pass a law saying CEOs can only make 10 times more than the lowest paid
employee in their company. So the company just
fires all the janitors, replaces them with Roombas, and then fires all the secretaries, and replaces them with phone Roombas. So then, you pass a law
requiring CEOs to take a pay cut. Okay, now the CEO moves
to an offshore island along with their company. Then what happens? Well, if you remember sophomore English, they hunt people for sport. So good job. I'm not saying you shouldn't pass laws, because people would get around them. Most states have prohibited
murder, for example, and while some ne'er-do-well butlers do keep slaying their masters, overall, I'm in favor of anti-murder laws. Again, my point is, you can use the carrot and stick of government
to alter people's actions, but you're never gonna change
their internal motivations. Also, what if the affected companies aren't run by greedy plutocrats, and a "Blade Runner" spinoff? What if they're just regular
people operating in a universe relentlessly tyrannized
by math and economics. For example, let's say your company doesn't have a 30% profit margin, even if it pulps and liquefies
the board of directors. That would mean if your cost
of business jumps up by 30%, you would simply go bankrupt, in which case nobody gets a job. Well done. To avoid that, any company
with a thin net profit margin would have no other option than to raise prices for consumers. Here, I'm gonna show you a diagram. The good news is,
California is super cheap. It's not at all a state
where average rent costs more than a Nebraska law degree, or
gasoline prices are so high, I just buy plastic jug vodka, and hope my Toyota doesn't notice. Even so, if you increase
the cost of something, people are gonna consume less of it. That's supply and demand. When my neighborhood
cigars doubled in price, I started purchasing half as many, and stealing twice as much. If companies increase their prices by 30% the ones with low net profit margins will flat go out of business, like that cigar shop that prosecuted me. Others will press on, but people will buy less of their stuff, and there's a good chance
you're gonna get fired anyway. If a company is looking to
save costs on employees, it's gonna be cheaper to fire
several part-time freelancers and hire a small squadron of full-timers, or specialty Roombas. Hope you make the cut. And in fact, that's
exactly what's happened. Vox Media, which is not
exactly a conservative bastion of right-wing punditry,
fired 200 freelancers as a direct result of AB5,
and hired in their place, 20 full-time employees. In response to the variety of situations in which effectively
outlawing freelancers, has had the baffling effect
of hurting freelancers, AB5's author, Lorena Gonzalez said, "These were never good jobs. No one has ever suggested
that, even freelancers. We will continue to
work on this next year." Okay, listen, can you
let me, the freelancer, make the call on whether
my job is crappy or not. As someone who has voluntarily worked for a variety of freelance gigs, please let the guy whose
job you might abolish determine whether the gig is
beneath my dignity or not. I would like to be in charge of whether I eat what you
consider bad pizza, or I starve. I should get to make that decision. A lot of people, again,
like myself for real, actually enjoy doing freelance work. I've been a cog in a corporation before, and I'd rather make less
money working on my own. For example, while the
Pacific Legal Foundation produced this video,
I'm not their employee, nor do I want to be. If I worked for PLF, they'd
make me wake up before 11, and commute to an office, put
on pants once I got there, and they probably wouldn't
even let me bring my dog. And if I did bring my dog, they'd say, "Hey, you don't own a dog. Heaton, did you steal a dog again?" No thank you. I'd rather take the pay
cut and be my own boss. And for the record, that's just me. Many people who are
more talented than I am, actually make more money working for themselves than a corporation, which I get to hear about
every single Thanksgiving. Way to go Marty. Point is, a lot of us just
enjoy being freelancers. We're not clamoring to be employees. When polled, Uber and Lyft drivers consistently ranked flexibility as the top reason they
contract with those companies. When you're an employee of a company, you don't always get to tell your boss, "Hey, I had a pretty busy weekend, so I'm gonna take Monday off, but I'm gonna work a double on Tuesday. Whereas with freelancing, you work as much as you want or need to. Spencer Grant is 75-years-old, and works as a freelance photographer. Normally, he relies on
income by selling photographs to the LA Times, often
up to a hundred per year. However, he's been informed
that because of AB5, the Times will only buy 35 of his photos. If they bought any more than 35, they would be required to
hire him as an employee, which they're not gonna do. So in an effort to protect freelancers from being taken advantage of, California has reduced his income by half. He could try to get a job
working as a staff photographer, but he has some doubts that companies will want to invest
resources in a 75-year-old. And in any case, he
prefers being a freelancer, because he's a full-time
caregiver to his wife, which requires flexibility. In fact, the American Society
of Journalists and Authors has filed a suit against this law, because their members have
built thriving careers as freelancers, but AB5
limits the amount of work they can do for any one
publisher to 35 gigs. After that, they either
have to hire freelancers as employees, or more likely,
just quit buying our stuff. Because again, in the state of California, there is a legal cap as to
how much work you can do as a freelancer. Have you ever met a musician? Your average guitar
player doesn't go to work at The Jazz Factory. And yes, I'm aware
there's almost certainly a overpriced LA bar
called The Jazz Factory. You know what I meant. My point remains,
musicians work piecemeal. They do gigs for a variety
of different places. They don't just work one spot. So if you're going to limit
musicians, which again, are unlikely to be hired
as full-time performers at one specific venue, because we don't live in
a broke patronage system, you're going to hurt musicians. Brendan Rawson is the
Director of San Jose Jazz, which I thought was a basketball team, until convinced otherwise. He's worried that because
AB5 requires music venues to designate members of
any act performing there, even once, as official
employees of the venue itself, AB5 might well bankrupt music venues, and that enforcement will still
wreck plenty of freelancers and businesses all the same. The Contra Costa Musical Theatre, a 59-year-old community theater group, had to shutter because
AB5 would require it to classify stagehand
and actors as employees, which it couldn't afford. The Lake Tahoe Music
Festival is shutting down after 40 years, because of AB5. Well done California, protecting freelancers like me, from festivals and musical theater. I don't need protection from
musical theater, thank you. I was in a Gilbert and
Sullivan based street gang in my youth, and we were quite capable of protecting ourselves. ♪ On the whole buggin',
ever lovin' street ♪ If you were a writer, or
a freelance photographer, or a trucker, you might
be able to get around AB5 by operating as your own
business, which has some perks. Seems to me, if I'm a business
instead of an individual, I could finally upgrade
from Tinder to LinkedIn. Do keep in mind, however, that
you might face difficulties qualifying as a business. The business to business exception in AB5 has 12 factors that have to be met. That's on top of the 21 factors
already required by the IRS. And by the way, if you're a writer, or a social media person, or any sort of freelancer in California, and you want to do work for
companies in saner states, they might just skip over
your application altogether to not deal with the headache of AB5. We should judge policies by their effects, not their intentions. The intentions behind AB5 are good. The authors want to protect the little guy from getting taken advantage of, or exploited by corporations. But while we can give people
credit for their intentions, we should assess policies
based on their outcome. In the same way that you
can't use the government to change other people's
intentions, only their actions, we need to judge government
policies by their actions and not their intentions. Governance is complicated. Lots of well-meaning
rules, from decent people, result in unintended consequences, but citizens only get to
deal with the consequences of those laws. They can't deposit
intentions in their bank in place of jobs. So while a given rule might feel good, because it's taking a swing
at somebody we don't like, or it's addressing a
problem we care about, we have to assess it based on
the outcome, not the intent. I don't fault the intention of AB5. Wanting to protect the little
guy from getting pushed around by a heartless corporation
is a good sentiment, but that's not the outcome of the bill. The outcome of the bill is that
freelancers lose their jobs, lose hours, and lose income. And if a bill is designed
to protect freelancers, but the available data shows
that it winds up hurting them, we need to take a deep breath,
eat some anchovy pizza, and start over. (upbeat music) From Pacific Legal
Foundation, I'm Andrew Heaton. Thanks. (upbeat music) Hey, my pizza Roomba's here. Thanks little buddy. (upbeat music)
