California Governor Gavin Newsom signed into law Wednesday a controversial bill that could upend the business models of ride-hailing apps like Lyft (LYFT) and Uber (UBER) by relcassifying some independent contractors as employees.
"It will help reduce worker misclassification - workers being wrongly classified as 'independent contractors, ' rather than employees, which erodes basic worker protections like the minimum wage, paid sick days and health insurance benefits", Newsom said in a statement Wednesday.
If they're unable to support themselves fully, gig workers will often turn to government assistance programs; which ultimately costs taxpayers, according to bill sponsor and California Assemblywoman Lorena Gonzalez.
Rideshare companies Uber and Lyft have responded to AB5 saying it will cost them potentially $90 million combined.
"We've engaged in good faith with the Legislature, the Newsom administration and labor 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", wrote Tony West, Uber's chief legal officer, after AB 5 passed.
The two ride-sharing companies strongly opposed the legislation. 5 itself creates more confusion - and that its drivers may still pass the test as independent contractors.
The Internal Revenue Service says it's "critical that business owners correctly determine whether the individuals providing services are employees or independent contractors" and lays out criteria for making the determination.
Backers called it one of the most significant changes in labor law in a generation.
"However, should this new law negatively impact legitimate independent owner-operators, we will challenge it in every way possible", OOIDA said.
Andrew Cuomo addressed the issue in a recent press conference, stating that lawmakers there "have to look at how we define employee vs. independent contractor going forward".
Newsom says he wants to convene labor and business leaders to find a way to ensure those workers can organize.
In a statement, Newsom called the bill "landmark legislation", and said that, "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-all while preserving flexibility and innovation". "We proved when working people stand together, we win!"
Amusing enough, the bill was born out of a 2018 California Supreme Court ruling, referred to as Dynamex, that came from truck drivers before companies like Uber even existed.
The sweeping legislation exempts a variety of industries from following the stricter test, including doctors and dentists, licensed lawyers and engineers, commercial fisherman, travel agents and more.
The legislature last week also approved a companion bill, AB 170, that would offer a one-year exemption for newspaper distributors and carriers who are under contract with a publisher. He also stated that Uber should be exempt from the law because "drivers' work [falls] outside the usual course of Uber's business".