Gig Economy Could See Overhaul Under New California Bill

California lawmakers passed a controversial labor bill on Tuesday (Sept. 10) that could turn on-demand contract workers into full-fledged employees.

App-based businesses tried to work out immunity to no avail and the bill passed the California State Senate in a 29 to 11 vote, The New York Times reported on Wednesday (Sept. 11).

California Gov. Gavin Newsom is predicted to sign the AB 5 bill this month after a vote by the State Assembly, where it is expected to pass.

Uber, Lyft and DoorDash are still fighting the bill and are planning to spend $90 million to bolster a ballot initiative that would make them exempt. Uber is going a step further and has pledged it will litigate misclassification claims from drivers.

An alliance of labor groups in New York is asking for similar legislation. Washington State and Oregon failed to pass a bill that was similar in nature AB 5, the NYT said.

The proposed California law affects at least one million contract workers who now have no basic protections like unemployment insurance and overtime.

The law would go into effect Jan. 1 and would require companies to reclassify contract workers as employees if certain criteria are met. The bill uses a rigid “ABC test” to resolve a worker’s employment status, USA Today reported, and puts the burden of proof on employers. Part A of the test requires that the worker is free from the control and direction of the hiring entity. Part B requires that the worker performs work that is outside the usual course of the hiring entity’s business. Part C requires that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

In 2018, the Supreme Court in California ruled that gig economy companies can’t count workers as independent contractors instead of employees. That court ruling paved the way for AB 5. The ruling said California-based gig companies like Uber and DoorDash must adhere to minimum wage and overtime laws, and also pay workers’ compensation and unemployment insurance. They would also have to pay payroll taxes, all of which could change their business models.