The California Assembly, in a 61-16 vote, has approved Assembly Bill 5, which requires companies to re-classify their independent contractors as employees. The bill has the support of Governor Newsom, but he is still conducting negotiations with the state’s major gig companies before he signs the bill into law.
What are Gig Companies?
Gig companies are those companies that use independent contractors, short-term employees, freelancers, or project-based employees. Essentially, “gig companies” and “gig workers” are terms that simply refer to the non-employee relationship between company and worker.
What Does This Reclassification Mean?
There is a big difference between being classified as an independent contractor or an employee. When it comes to employees, companies are responsible for adhering to minimum wage and anti-discrimination laws, paying Social Security, payroll taxes, and unemployment insurance, and providing workers’ compensation insurance. Needless to say, the costs to companies are far higher when workers are classified as employees versus independent contractors.
Arguably, the most well-known gig company that exists in the United States is Uber. Uber drivers are currently classified as independent contractors, and this bill has the potential to force all Uber drivers in California to be re-classified as employees. Uber’s Chief Legal Officer, however, has already made a statement claiming that the new law would not apply to its drivers. The law states that a worker can only be classified as an independent contract if their work is not directed by the company and falls outside of the company’s main business.
According to Uber, that means its drivers can be classified as independent contractors, since their main business is not driving, but technology. They argue that their business is providing the technological platform, or the app, to allow ridesharing to occur, and that the actual act of driving falls outside their main business. Thus, they have already announced that they will not be reclassifying their drivers in California as employees.
Governor Newsom is conducting discussions with major gig companies, like Uber, Lyft, Postmates, and DoorDash, to try to find a solution that all can agree on. These major gig companies argue that they will have to curtail hiring and operating within the State of California because of the drastic increase in costs they may face as a result of having to reclassify their workers as employees.
Some employees of these major gig companies are also worried about the potential effect on their flexible work schedules. If they were to be classified as employees, their employers would also have to abide by labor laws, which include the hours worked and working conditions.
Proponents of the bill, however, argue that this new bill will help protect the millions of low-income workers in California, like construction workers, farm hands, or janitors, who are not currently protected by employment laws.
If Governor Newsom does eventually sign the bill, which most believe he will, other states could soon follow suit.