A battle over the future of the gig economy is being fought in the California legislature this week, as lawmakers consider a controversial bill that would require companies — including tech titans like Uber and Lyft — to bring their independent contractors on board as employees.
AB 5, legislation that would codify a landmark ruling issued by the state Supreme Court last year, would apply a definitive “ABC test” to determine which workers can be classified as independent contractors and would put the burden of proof on employers.
What’s at stake for workers, businesses
If enacted, proponents of the bill say it will secure labor protections like minimum wage, overtime and workers compensation for more than a million Californians, bring in more tax revenues from businesses, and enable unionization efforts spreading through the gig industry.
Independent contractors don’t qualify for protections under the Fair Labor Standards Act, Americans with Disabilities Act, or the Civil Rights Act. They also must pay the entire portion of payroll taxes, lowering their take-home wages. That’s why they are so much cheaper for companies to hire. The National Employment Law Project estimates businesses save roughly 30% in costs when they work with independent contractors instead of hiring employees.
The bill is expected to set a precedent in a national fight being waged by gig workers across the country — and it could cost companies millions, potentially disrupting the business models of on-demand app-based services built on contract labor.
What are the chances it is signed into law?
The legislation is expected to land on Gov. Gavin Newsom’s desk before the end of the legislative session this month, but he’s already given it the thumbs up. In an op-ed published in the Sacramento Bee on Labor Day, Newsom called on lawmakers to pass the bill.