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Gig Economy Shakeup: California Poised to Classify Contractors as Employees

The California Senate passed legislation this week that could shake up the state’s employment landscape by turning many independent contractors into employees.

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Assembly Bill 5 (AB5) passed a final vote with the Assembly on Wednesday and now goes to Gov. Gavin Newsom, who has already publicly supported it. It would go into effect Jan. 1, 2020 if signed.

The bill expands on the California Supreme Court decision from last year known as the Dynamex, which uses an “ABC” test to determine employment status. The language reads that a worker is an employee if the worker’s tasks are a) performed under an organization’s control; b) those tasks are central to that company’s business; and c) the worker does not have an independent enterprise in that trade.

One of the bill’s co-authors, State Sen. Maria Elena Durazo, D-Los Angeles, said certain companies have exploited workers for decades with false contractor labels. Proponents of the bill assert that companies call workers independent contractors to avoid paying minimum wage, overtime, workers’ compensation, unemployment insurance and other benefits, which could add 30% to labor costs.

That costs California some $8 billion a year because of lost wages, taxes and expenses, as well as subsidizing social safety-net assistance for the workers, said the bill’s author, Assembly member Lorena Gonzalez, D-San Diego.

The bill has exemptions for certain occupations, including surgeons, dentists, lawyers, physicians, certain direct salespersons and commercial fishermen working on a U.S. vessel. The classification test would not be applied to people performing work in “professional services” occupations, among others.

Opponents to the bill, which include companies and workers, warn that adding the cost of employment could result in much higher charges to consumers and worse service. Uber, one of the tech companies explicitly targeted by the legislation, responded on Wednesday that it will not treat its drivers, who are independent contractors, as employees despite the new law. Uber’s chief legal officer, Tony West, said Uber’s business is not providing rides but “serving as a technology platform for several different types of digital marketplaces.”

West added that the company was “no stranger to legal battles,” foreshadowing the long, drawn out process that is surely to come. 

Uber, Lyft and other gig companies are planning to take their case directly to voters with a ballot initiative in November 2020 that seeks to create a new category of workers who would be independent but could receive benefits and a guaranteed wage floor.

About the Author

Brett Christie Bio Image

Brett Christie is a staff writer at WorldatWork.


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