SACRAMENTO (CN) – Uber drivers and other independent contractors could soon be considered employees and entitled to benefits under legislation approved Wednesday by California lawmakers.
San Diego Assemblywoman Lorena Gonzalez says her bill is a warning shot to rideshare companies and others in the so-called “gig economy” that have avoided providing health and retirement benefits to employees by misclassifying them as contractors.
The Democrat’s measure cleared the Assembly in a 55-11 vote – with just one Republican voting in favor – and advances to the state Senate.
“Big businesses shouldn't be able to pass their costs on to taxpayers while depriving workers of the labor law protections they are rightfully entitled to,” Gonzalez said in a statement after the floor vote. “This legislation is an important work-in-progress to provide certainty to California’s businesses, provide protections for California’s workers and guard the taxpayers from subsidizing unscrupulous corporations.”
The legislation was born from an important 2018 California Supreme Court ruling in which the court sided with a class of independent delivery drivers who argued they were wrongly denied employment protections.
In Dynamex v. Superior Court, the state’s high court ruled that, in order to classify workers as contractors, a company must show it does not directly control the worker, that the work falls outside its usual course of business, and that the worker is “customarily engaged in an independently established trade.” The three prongs have been referred to as the “ABC test,” and this the standard that Gonzalez is attempting to codify in state law through AB 5.
Trade groups have been closely watching AB 5, and some of their lobbying efforts have paid off. Gonzalez has agreed to exempt real estate agents, doctors, lawyers, insurance agents and hairstylists from her bill. But she has refused to do the same for rideshare or truck drivers, meaning companies like Uber and Lyft would have to comply with AB 5 if it is approved by the Senate and Governor Gavin Newsom.
Critics have argued that the sweeping bill would force some companies to trash successful business models or potentially flee the Golden State.
New Jersey, Massachusetts and Connecticut use the ABC test to determine employee status, and nearly 30 states use it when determining unemployment insurance eligibility, according to the bill’s legislative analysis.
Earlier this month, the Ninth Circuit ruled that the Dynamex order applies retroactively before the April 2018 ruling, setting up more legal battles between contractors and their employers.
The bill has received heavy support from labor unions, but many trade groups are still on the fence as they continue to press Gonzalez for exemptions.
The Service Employees International Union California, which represents 700,000 people, chalked Wednesday’s vote as a major win for “hard-working Californians.” In the Dynamex case, the state estimated that misclassification costs the state $7 billion annually.
“Today, we applaud the California state Assembly for standing by working people and sending a strong message that our state won’t devalue the California Dream by allowing unscrupulous employers to misclassify workers, shortchange their families of wages and benefits and undercut public services,” said David Huerta, the union’s president.
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