Yesterday, Assembly Bill 5 (AB 5) was passed in California’s Senate by a vote of 29-11. AB 5 is aimed at ensuring that independent contract works in the gig economy have a minimum wage, workers’ compensation and other benefits. If passed, this bill will result in major consequences for on-demand delivery and ride-hailing companies such as Lyft, Uber, and DoorDash, which classify most of their workers as independent contractors. The proposed bill is endorsed by Gov. Gavin Newsom and it now heads to the state Assembly, where it is likely to be approved. Gov. Newsom stated the following in an op-ed posted in the Sacramento Bee,
Workers lose basic protections like the minimum wage, paid sick days and health insurance benefits. Employers shirk responsibility to safety net programs like workers’ compensation and unemployment insurance. Taxpayers are left to foot the bill. Reversing the trend of misclassification is a necessary and important step to improve the lives of working people.
AB 5 is intended to codify a ruling from last year decided by the state Supreme Court, in which the court applied a test to distinguish contractors from employees. Here is how AB 5 sums up the distinction between an independent contractor and an employee:
A person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that the person is free from the control and direction of the hiring entity in connection with the performance of the work, the person performs work that is outside the usual course of the hiring entity’s business, and the person is customarily engaged in an independently established trade, occupation or business.
Independent contractors are not entitled to unemployment benefits and are thus not expected to deposit money into the statewide fund. Several companies have expressed their opposition to the proposed bill due to their belief that it will create a massive shift in worker status that will impede the flexibility needed to allow their businesses to operate effectively. AB 5 does have some exceptions for some occupations such as commercial fishermen, licensed insurance agents, investment advisers, and a couple others. Lyft, Uber and DoorDash have stated that they will spend tens of millions of dollars toward a possible ballot initiative to undo the bill’s effects it if it is passed. He will have to wait and see when the Assembly plans on voting on the proposed bill.