California passes landmark Bill to remake gig economy

Uber and Lyft, which have hundreds of thousands of drivers in California, have said contract work provides people with flexibility. They have warned that recognising drivers as employees could destroy their businesses.
Uber and Lyft, which have hundreds of thousands of drivers in California, have said contract work provides people with flexibility. They have warned that recognising drivers as employees could destroy their businesses.PHOTO: NYTIMES

SACRAMENTO (NYTimes) - California legislators approved a landmark Bill on Tuesday (Sept 10) that requires companies like Uber and Lyft to treat contract workers as employees, a move that could reshape the gig economy and that adds fuel to a years-long debate over whether the nature of work has become too insecure.

The Bill passed in a 29-11 vote in the state Senate and will apply to app-based companies, despite their efforts to negotiate an exemption. California's governor, Gavin Newsom, endorsed the Bill this month and is expected to sign it. Under the measure, which would go into effect on Jan 1, workers must be designated as employees instead of contractors if a company exerts control over how they perform their tasks or if their work is part of a company's regular business.

The legislation will affect at least one million workers in California who have been on the receiving end of a decades-long trend of outsourcing and franchising work, making employer-worker relationships more arm's-length. Many people have been pushed into contractor status with no access to basic protections like a minimum wage and unemployment insurance. Ride-hailing drivers, food-delivery couriers, janitors, nail salon workers, construction workers and franchise owners could now all be reclassified as employees.

But the Bill's passage threatens gig economy companies like Uber and Lyft. The ride-hailing firms - along with app-based services that offer food delivery, home repairs and dog-walking services - have built their businesses on inexpensive, independent labour. Uber and Lyft, which have hundreds of thousands of drivers in California, have said contract work provides people with flexibility. They have warned that recognising drivers as employees could destroy their businesses.

The Bill, which codifies and extends a 2018 California Supreme Court ruling, may influence other states. A coalition of labour groups is pushing similar legislation in New York, and Bills in Washington state and Oregon that were similar to California's but failed to advance could see renewed momentum. New York City passed a minimum wage for ride-hailing drivers last year but did not try to make them employees.

"It will have major reverberations around the country," said David Weil, a top Labour Department official during the Obama administration and the author of a book on the so-called fissuring of the workplace. He argued that the Bill could set a new bar for worker protections and force business owners to rethink their reliance on contractors.

"It's particularly critical because of the impact it's going to have on the development of other business models," Weil said.

 
 
 
 

California legislators said the Bill, known as Assembly Bill 5 and proposed by state Assemblywoman Lorena Gonzalez, a Democrat, would set the tone for the future of work.

"Today the so-called gig companies present themselves as the innovative future of tomorrow, a future where companies don't pay Social Security or Medicare," said state Senator Maria Elena Durazo, a Democrat. "Let's be clear: there is nothing innovative about underpaying someone for their labour." She added, "Today we are determining the future of the California economy."

Gig-type work has been under the spotlight for years as companies like Uber, Lyft and DoorDash in the United States - as well as Didi Chuxing in China and Ola in India - have grown into behemoths even as the contractors they relied on did not receive the benefits or minimum pay guaranteed to employees. Many of the companies have worked assiduously to beat back efforts to classify their workers as employees, settling class-action lawsuits from drivers and securing exemptions from rules that might have threatened the drivers' freelancer status.

While regulators in California and at least three other states - New York, Alaska and Oregon - had found that ride-hailing drivers were employees under state laws for narrow purposes, like eligibility for unemployment insurance, those findings could be overridden by state laws explicitly deeming the drivers as contractors. About half the states in the nation had passed such provisions.

But more recently, the tide began changing. Two federal proposals introduced since 2018 have sought to redefine the way workers are classified to allow more of them to unionise. Those proposals have received support from candidates for the Democratic presidential nomination, including Senators Kamala Harris, Bernie Sanders and Elizabeth Warren. The presidential hopefuls also lent their endorsement to the California Bill.