It looks like California Bill AB5 will be going into effect. To refresh your memory, “Known popularly known as the gig worker bill, it required companies that hire independent contractors to reclassify them as employees,” wrote Investopedia.

Upside: gig workers will now be entitled to minimum wages, health insurance, vacation time and other employee benefits. Downside: they no longer choose their schedules, may be barred from taking other employment. And who ultimately gets the bill for the increased costs? Enactment of the bill was temporarily delayed by trucker protests. “California truckers pledge to continue blockade of Oakland port over controversial labor law,” as it made it difficult for them to work as independent contractors, Fox News reported.

It affects tech, too – big time, so pay attention.

During the lockdowns, some countries required that employers continue to pay their employees, even in cases where the company would essentially need to cease functioning as a result of said lockdowns. If they laid the employees off, they were required to pay three months severance. Both of which drove many companies out of business, especially startups – so everyone was out of a job. Nothing like throwing out the baby with the bathwater.

This bill will apply to the tech sector as well, trust us, and how many California-based companies employ gig workers/independent contractors? One investor told us that in his portfolio, around 70% of people working for his companies are contractors. If those young companies were suddenly required to hire those people as employees, how many would be able to stay in business – or remain in the state?

And note to self, according to Investopedia, “Some analysts suggested that the cost of reclassifying gig workers as employees would potentially bankrupt both companies, destroying the gig worker business model in the process…and that if companies want to preserve their profit position, then the additional costs of reclassifying will likely be passed on to the consumers who use their services.” But re many good and service: we live in a connected world. There are cases where consumers would simply opt to acquire products/services from companies not effected by AB5.

Heads up to non-Cali-based companies: “Gig workers and the companies that hire them in other states should pay close attention to AB5…” Also, “In New York, plans are in the works to introduce legislation that would protect gig workers on a similar scale.”

 

Not too long ago, investor Keith Rabois tweeted re San Francisco, “it’s not back,” and he was right. A good deal of the money left and in case you missed it, More People Leaving San Francisco Than Any Other Metro Area: Redfin. Silicon Valley was California’s jewel in the crown. Silicon Valley – and the tech sector in general – has certainly been granted some amazing tax breaks over the years in order to foster the industry, and it has greatly benefited the state’s coffers. But with investor dollars being much more carefully deployed these days, and many companies just getting back on their feet after the challenges of the past few years, this is not the time for legislation like this which, for the record, was first passed in 2019, during the halcyon days.

Times change and heads up, California and New York, past glory is no indication of future success, Meta being a prime example (Meta’s market value plunges by $230 billion in one day. One day, Gracie – things happen fast in tech). Given the current widespread layoffs of full-time headcount that tech is experiencing, you think we might see something of an increase in hiring consultants for critical, if somewhat more temporary, needs?

The AB5 legislation was supposed to have taken affect January 1, 2020 but was postponed due to lawsuits. California statewide lockdowns were issued March 20 of that year, which certainly changed the gig economy/remote worker landscape, but who noticed?

When Michael Bloomberg was mayor of NYC, he decided to generate additional taxes for the city by more than doubling the taxes on cigarettes. Results: tax revenue from cigarette sales were down. People went to neighboring states to purchase those products. Gotta love unintended – yet foreseeable – consequences.

If the law is truly implemented at this juncture, Silicon Valley may well go into a death spiral and since New York seems to always follow California’s lead – it was California that first mandated that all vehicles sold in the state as of 2035 be the EVs and NY quickly following suit – the Don’t Say Gig bill may well be enacted in New York sooner rather than later.

 

We will remind you that even back in early 2020, Wall Street Banks And Tech Companies (Were) Fleeing New York And California due to expensive real estate and “punishingly high tax rates and lack of business-friendly policies,” said Forbes.

Said CNBC, (Why some tech companies and billionaires are leaving California) “California’s population and job growth have both slowed to a trickle, with many citing concerns about high taxes, cost of living and heavy regulations. With the rise of remote work in 2020, over 135,000 more people left California than moved in — the third largest net migration loss ever recorded for the state.”

It’s the new the anti-California dream.

And the trend continues, even as the two states attempt to get back on their collective feet, and we wonder why two states so rabidly anti-firearms never seem to shrink from shooting themselves in the foot.

In case you’re wondering why The Next Silicon Valley Will Be in the US Heartland, according to AOL founder, investor and philanthropist Steve Case, who predicts the dominance of tech companies on the coasts will give way to a flourishing of startups from smaller cities.” Case has been focused on this space since way before the lockdowns and the exodus of talent and money from the major tech hubs – Silicon Valley and New York in particular – with his Rise of the Rest, which is what he dubbed his focus on the so-called flyover states.

Are tech ‘hubs’ as critical as they were in the past, considering that investor pitches are now done over zoom and investors not as geographically focused as they formerly were? What to speak of the fact that “In the last 10 years, 1,400 new regional venture firms started in Rise of the Rest cities. There’s been a 600 percent increase in venture capital dollars going to these cities,” as Case noted in the Wired interview.

We may well be in the throes of the Rise of the Rest/flyover states, while California and New York, the two hubs sitting on opposite sides of the country, continue to make moves to ensure that they will be doing little more than coast. Onward and forward.