SACRAMENTO – California has passed landmark employment legislation that challenges the business model of gig-economy companies such as ride-hailing giants Uber Technologies and Lyft, some of the powerhouses of Silicon Valley over the past decade.
Assembly Bill 5 was signed by Gov. Gavin Newsom, a Democrat, last week. Sponsored by Assemblywoman Lorena Gonzalez (D-San Diego), the bill passed in the Democrat-led state Assembly before passing the state Senate in a 29-11 vote along party lines, with the chamber’s Republican caucus casting the only no votes.
The California Chamber of Commerce says the independent contractor bill provides some clarity for those employed in the gig economy.
Assemblywoman Lorena Gonzalez (D-San Diego) | Assemblywoman Lorena Gonzalez's website
"CalChamber is pleased with the number of professions that AB 5 recognizes should not fall under the independent contractor test set forth in the Dynamex decision. AB 5 provides clarity and certainty for those industries," it said in a statement. "The fact that the Legislature recognized in AB 5 – and in related legislation – that so many professions and industries include workers who are not appropriately classified as employees is strong evidence that the Dynamex decision should not apply to everyone and there are many industries that still need to be added."
AB 5 forces companies to reclassify certain contract workers as employees and comes in wake of the state Supreme Court’s 2018 Dynamex decision, which entirely reformed the definition of an independent contractor.
The high court ruled that a worker is an employee and eligible for benefits unless the worker comes under the ABC rule, a three-part test that helps identify which category the worker falls under.
Under the rule, the worker has to be free from control and direction of the hirer; performs work outside the usual course of the hiring entity’s business; and is engaged in an independently established trade or occupation.
The California Chamber of Commerce said that although AB 5 is a start, but more needs to be done.
“Simply put, much work remains to be done on the Dynamex issue," it said. "As such, the business community will be aggressively pursuing further exemptions next year. The test set forth in the Dynamex ruling does not correctly contemplate the realities of the modern economy nor fairly consider the sweeping impracticalities it would bring to the California economy.”