How the New Independent Contractor Law Could Affect California

October 4, 2019 Updated: October 4, 2019

A California bill that would require employers provide insurance and other benefits for contractors and freelancers has been signed into law by Gov. Gavin Newsom.

AB-5, authored by Assemblywoman Lorena Gonzalez (D-San Diego) states “a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor.”

An exception would be granted if “the hiring entity demonstrates that 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.”

The bill was approved by the governor on Sept. 18 and was supported almost entirely along Democratic party lines, while nearly all Republicans were opposed.

Assemblywoman Gonzalez did not respond to The Epoch Times for comment.

In an op-ed for the Sacramento Bee, Gov. Newsom expressed his support for Gonzalez’s legislation.

“Our economy has stopped working for working people. While the wealthiest have grown wealthier, the middle class and working people have grown poorer. Corporate profits have gone through the roof while worker pay has remained in the basement. Contributing to this imbalance is the misclassification of workers, where companies eager to save on labor costs identify workers as ‘independent contractors’ rather than employees.”

Newsom said workers should be afforded basic protections like the minimum wage, paid sick days, health insurance benefits, and unemployment insurance.

Many companies that rely on contractors as their main workforce, such as Uber and Lyft, have expressed fierce opposition to the law, saying it forces companies to lower workers’ wages in order to provide employee benefits.

The Epoch Times spoke with Lyft senior communications manager CJ Macklin on Lyft’s position on the law.

He explained how it could affect the company’s workforce negatively, including “limiting drivers’ hours and requiring shifts. Additionally, drivers may see their wages become uniform, earning a flat rate instead of the higher earning opportunities they currently enjoy. California Lyft drivers have seen their earnings rise 6% over the past two years, now making more than $31 per booked hour. It’s also worth noting that Lyft would only need a fraction of the drivers it has now if it moved to an employment model, with a recent report indicated as many as 300,000 Californians could lose the opportunity to drive with Lyft entirely.”

Macklin also explained how the law could also negatively affect Lyft’s customers, particularly in low income areas, with “higher costs and longer wait times, and some areas could lose service entirely. 40% of California Lyft rides start or end in low-income areas. This would have a particularly devastating impact on low-income riders who live in transit deserts or who aren’t served well by public transit or riders that live in less densely-populated areas.”

Macklin also told the Epoch Times that the major ride sharing companies had attempted to propose alternative solutions to the bill in order to mitigate the effects on the company, its workforce, and its customers.

The companies are reportedly now preparing a California ballot initiative to try to exempt themselves from the new law.

“We are working on a solution that provides drivers with strong protections that include an earnings guarantee, a system of worker-directed portable benefits, and first-of-its kind industry-wide sectoral bargaining, without jeopardizing the flexibility drivers tell us they value so much,” said Macklin.

The Epoch Times also attempted to speak with Uber on the issue, but a request for comment was not returned.

Companies can expect to incur around a 20 to 30 percent increase to their cost of labor by switching their workers to employee status instead of contractors, according to the Los Angeles Times. Other industries that could be affected include the music industry, trucking, and janitorial services.