AB 5: Gov. Newsom signs bill that classifies independent contractors as employees in California

Posted at 12:25 PM, Sep 18, 2019

SAN DIEGO (CNS) - A San Diego lawmaker's bill to limit when businesses and companies can classify employees as independent contractors was signed into law Wednesday by California Gov. Gavin Newsom.

In a signing statement, Newsom called AB 5, authored by Assemblywoman Lorena Gonzalez, "landmark legislation" to combat worker misclassification.

"The hollowing out of our middle class has been 40 years in the making, and the need to create lasting economic security for our workforce demands action," Newsom wrote. "Assembly Bill 5 is an important step. 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."

AB 5 will codify worker protections and requirements established in last year's state Supreme Court decision in the case of Dynamex Operations West Inc. v. Superior Court of Los Angeles.

Under the so-called ABC test required by the decision, workers can qualify as independent contractors if they are free from employer control or direction, engaged in an independent trade or profession and the work takes place outside the business' normal scope.

"Today, we are disrupting the status quo and taking a bold step forward to rebuild our middle class and reshape the future of workers as we know it," Gonzalez said. "As one of the strongest economies in the world, California is now setting the global standard for worker protections for other states and countries to follow."

The law will reclassify thousands of California workers like Uber drivers and exotic dancers as employees rather than independent contractors.

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. That bill is still on the governor's desk.

"While I personally disagree with this delay, I'm willing to allow the newspaper industry the additional year to comply if it means those delivery drivers and nearly a million other misclassified workers are provided the minimum wage, benefits and workplace rights of Assembly Bill 5," Gonzalez said in a statement issued last week.

AB 5 is set to upend the gig economy in the state by offering labor rights and protections like unemployment insurance, health care subsidies, overtime pay and the ability to unionize to former independent contractors. A 2018 study by the Public Religion Research Institute found that 48% of gig economy workers in California deal with poverty.

The law has drawn national attention due to support from three Democratic presidential candidates: Sens. Elizabeth Warren of Massachusetts, Bernie Sanders of Vermont, and Kamala Harris of California.

Companies like Lyft, Uber and DoorDash that have relied on thousands of independent contractors have said they plan to spend upwards of $90 million combined on a ballot initiative to overturn the law. They have also argued that increased spending on employees will lead to higher fares for riders.

Certain industries like licensed insurance and real estate agents, cosmetologists, freelance journalists who complete fewer than 35 assignments for a single publication per year and commercial fishermen will be exempt from the reclassification, but workers for major ride-booking companies like Lyft and Uber would not be.

Uber Chief Legal Officer Tony West argued in a blog post that the company complies with the ABC test because "drivers' work is outside the usual course of Uber's business."

"At Uber we embrace the challenge to improve work for drivers," West said. "But we will continue to defend our ability to enable on-demand, independent work."

AB 5 will go into effect on Jan. 1.