Published: Sat, September 21, 2019
Global News | By Blake Casey

Governor Signs AB5 Into Law ⁠- Reshaping California's Independent Contractor Classification Landscape

Governor Signs AB5 Into Law ⁠- Reshaping California's Independent Contractor Classification Landscape

Lorena Gonzalez, the state assemblywoman who authored the bill, said in a statement that, "California is now setting the global standard for worker protections for other states and countries to follow". "A next step is creating pathways for more workers to form a union, collectively bargain to earn more and have a stronger voice at work".

The bill, titled AB 5, will go into effect January 1 and ensure more protections and benefits for some workers.

Under the new regulations, employers must prove their workers are independent contractors, a classification certain companies have been accused of using to dodge labor protections like health insurance and overtime pay. AB 5 sought to codify a state Supreme Court decision previous year that said in order for workers to be considered independent, they must be free from the direction and control of the hiring entity, perform work that is outside the usual course of the entity's business, and be customarily engaged in an independent business.

California Governor Gavin Newsom signed legislation Wednesday which could slam the brakes on the so-called "gig economy" by requiring rideshare firms to treat contract drivers as employees, challenging the economic models of giants such as Uber and Lyft.

The new law comes with growing numbers of workers relying on short-term "gigs" which offer greater flexibility but lack the benefits of regular employment.

Rideshare companies Uber and Lyft have responded to AB5 saying it will cost them potentially $90 million combined.

While it affects up to a million workers, according to Gonzalez, its effect on ridesharing and meal delivery companies has seized the spotlight.

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Uber and Lyft, whose business models may be jeopardized by the law, said they would press on for a referendum that would overturn the measure, asking voters to approve a new system for independent workers with benefits. As of writing, most Uber, Lyft, DoorDash, or Amazon Flex drivers have to handle all of these expenses for themselves; regardless of how many hours they put into their jobs.

California has an official law on the books to protect gig economy workers, roughly a decade after the gig economy emerged.

"We've engaged in good faith with the Legislature, the Newsom administration and labour leaders for almost a year on this issue, and we believe California is missing a real opportunity to lead the nation by improving the quality, security and dignity of independent work".

If Newsom's words upon signing the bill are any indication of the future of gig economy-related legislation in blue states, the days of widespread contractor labor for tech companies whose core businesses would appear to depend on it may be ending.

The law "does not provide drivers benefits; give them the right to organize, or classify them as employees", Uber chief legal officer Tony West said on a call last week with reporters.

Several occupations are, by default, exempt from AB5, including "direct sales salespersons", real estate licensees, commercial fisherman, insurance agents, and others.

"At Uber we embrace the challenge to improve work for drivers", West said.

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