SACRAMENTO – California legislators on Tuesday passed Assembly Bill 5, limiting businesses’ ability to designate certain employees as independent contractors in the state, which now awaits the signature of Gov. Gavin Newsom.
The bill would extend to independent contractors some of the same protections that hourly workers receive, which will present challenges for gig economy businesses such as Uber, Lyft and DoorDash.
Civil Justice Association of California President and CEO Kyla Christoffersen Powell believes AB 5 needs more fine-tuning to suit the needs of independent contractors of other companies.
“We support the exemptions included in AB 5, but many industries and professions remain unaddressed,” Powell said. “Without a broader fix than that contained in AB 5, we may see a floodgate of costly litigation that drives entrepreneurs out of business and negatively impacts California’s economy, with implications for years to come.”
Uber and Lyft both reportedly told Vox that they would not change their contractors to employees if the bill is signed into law, stating that drivers are not directly tied to their organizations and often work outside the business.
Newsom has stated that he supports the bill and would most likely sign it when it reaches his desk.
“The California Supreme Court’s Dynamex decision from April imposed far too stringent of a standard for employee versus independent contractor classification, creating a minefield for California businesses, both for those who wish to hire independent contractors or be independent contractors, particularly small businesses,” Powell said.
In the Dynamex decision, the Supreme Court outlined the requirements for a worker to be considered an independent contractor.
The court found that a worker is presumed to be an employee, and eligible for benefits, unless he or she comes under the so-called ABC rule.
Under the ABC rule, the worker has to be free from control and direction of the hirer; perform work outside the usual course of the hiring entity’s business; and be engaged in an independently established trade or occupation.
The National Federation of Independent Business told the Northern California Record that it intended to fight back against the bill.
"We don’t think it’s right to give a carve out to select industries," Luke Wake, staff attorney with NFIB, told the Northern California Record. "We think that if someone is holding themselves out of being in business and they intend to operate as an independent business, say for example if they’ve gone through the steps of incorporating or having an LLC, if they think they’re an independent business then they should operate under the old standards. So we’re looking for a business-to-business exception from this ABC test."