The California Senate approved legislation Tuesday that would classify many freelance workers as employees rather than independent contractors—requiring companies to offer them the requisite benefits that go along with that designation.
The bill, which Gov. Gavin Newsom is expected to sign, first must be OK’d by the state Assembly, which had approved a different version earlier this year.
While some news outlets have focused largely on the bill’s effects on app-based companies like Uber and Lyft, the law would actually have a broad impact on many organizations that happen to hire freelancers in California.
The Teamsters union praised the state Senate’s action, saying it will expand employment protections to thousands of workers currently misclassified as independent contractors.
“Misclassification is an attempt to weaken the power of workers, including the thousands of truck drivers in California who deserve a living wage and full rights as employees,” said Jim Hoffa, general president of the International Brotherhood of Teamsters.
Impact on employers
The heads of rideshare companies, however, seem not so pleased. In August, leaders of Lyft and Uber co-authored an op-ed piece published in the San Francisco Chronicle opposing the reclassification of their drivers as employees.
The battle is not so much one of semantics; it really centers around money. By some estimates, the reclassification of Uber and Lyft drivers as employees rather than independent contractors could cost each company additional thousands per year per driver. Providing employee benefits, after all, can be expensive.
Uber, in its prospectus issued in April, gave a fair amount of ink to explaining the adverse effects a classification of drivers as employees rather than as independent contractors would have on its existence.
“If, as a result of legislation or judicial decisions, we are required to classify Drivers as employees (or as workers or quasi-employees where those statuses exist), we would incur significant additional expenses for compensating Drivers, potentially including expenses associated with the application of wage and hour laws (including minimum wage, overtime, and meal and rest period requirements), employee benefits, social security contributions, taxes, and penalties,” wrote the company.
Of note is that elsewhere in the very same prospectus, Uber maintained one of its eight cultural norms is “We do the right thing. Period.”
And yet: “Any such reclassification would require us to fundamentally change our business model, and consequently have an adverse effect on our business and financial condition,” Uber wrote. The company’s first day of trading as a public company was May 10.
Would anyone still be deemed a ‘freelancer’?
If the California bill does become law, it would impact more than just drivers for ridesharing apps. The bill would apply to a host of freelancers, ranging from newspaper delivery people to writers to others actively engaged in the gig economy. People working for money would be deemed employees rather than independent contractors unless all of the following conditions of the so-called “ABC test” are satisfied:
- The person is free from the control and direction of the hiring entity in connection with the performance of the work;
- The person performs work that is outside the usual course of the hiring entity’s business; and
- The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
There are some exceptions for physicians and others in the healthcare profession as well as for lawyers, accountants, investment advisers, and some others.
Calling the passage of the legislation “a historic win for California workers,” Art Pulaski, the Executive Secretary-Treasurer and Chief Officer of the California Labor Federation, said the action solidified California’s “position as the national leader on workplace rights, setting the standard for the rest of the country to follow.”
The law actually codifies a California Supreme Court decision issued last year that said workers would be considered employees, rather than freelancers, unless they meet all the prongs of the ABC test.
The battle continues?
Before the legislation is presented to Governor Newsom, the state Assembly must approve the amended version passed by the Senate.
The Associated Press reported Uber and Lyft have threatened to spend some $60 million to take this issue directly to voters via a ballot measure. DoorDash then reportedly also chimed in with plans to add an additional $30 million to that pot in an effort to thwart the reclassification of independent contractors as employees.
Lori Tripoli is a writer based in the greater New York City area who focuses on legal and regulatory issues.