Governor Gavin Newsome signed a controversial bill, known as AB 5 which went into effect on January 1, 2020. This bill comes out after months of uproar from businesses like Uber and Lyft for the reason that this bill will require businesses to hire workers as employees, versus independent contractors (minus a few exceptions). After an aggressive fight by Uber and Lyft, they ultimately lost this battle. Senators voted 29-11 in favor of AB 5 last week and the state assembly approved the amendments.
Current State of Affairs
Prior to this bill, tech giants like Uber and Lyft relied on hundreds of thousands of independent contractors to transport passengers, deliver food and other similar work. The advent of requiring companies like the aforementioned to treat these drivers like employees versus an independent contract completely changes the model on which these large companies operate.
The reaction to this bill is mixed. Now these workers will get labor protections and benefits that all employees get, such as insurance, health care, paid leave, overtime, rest break and a guaranteed $12 minimum hourly wage. Additionally, and very important, they could also potentially unionize. What this means for the companies is a lot of added costs.
How do you determine if one is an independent contractor or employee?
There is a test that is referred to as the ABC test. To be an independent contractor, you must prove that the worker is:
- Free from the company’s control;
- Performing work that isn’t central to the company’s business; and
- Has an independent business in that industry.
If a worker does not meet all three of these conditions, they are required to be classified and treated as an employee. This is a much stricter standard of proof than the pertinent federal laws currently in place.