California lawmakers rewrote the rules of employment across a wide swath of industries Wednesday in legislation that could grant hundreds of thousands of workers new job benefits and pay guarantees.
After vigorous debates over what occupations should be exempted. Assembly Bill 5, which curbs businesses’ use of “independent contractors,” gained final approval in the state Senate and the Assembly and was sent on to Gov. Gavin Newsom, who has pledged his support.
The 6,700-word bill, one of the most controversial of the year, could upend the relationship between workers and bosses across businesses as varied as ride-hailing tech giants, construction, healthcare, trucking, janitorial services, nail salons, adult entertainment, commercial fishing and newspapers.
The message of the legislation, said its author, Assemblywoman Lorena Gonzalez (D-San Diego), is “your business cannot game the system by misclassifying its workers. As lawmakers, we will not in good conscience allow free-riding businesses to continue to pass their own business costs onto taxpayers and workers.
“It’s our job to look out for working men and women, not Wall Street and their get-rich-quick IPOs.”
After months of lobbying by the California Chamber of Commerce and a score of trade associations, the final bill exempted a host of occupations, but not the platform-based gig giants Uber, Lyft, DoorDash, Postmates and others that mounted a powerful push to avoid reclassifying their workers as employees with labor law protections.
The legislation, which passed the Assembly 56 to 14 and the Senate 29 to 11, codifies and expands on a 2018 California Supreme Court decision which adopted a strict, three-part standard for determining whether workers should be treated as employees, modeled on a Massachusetts test.
In a Labor Day opinion article, Newsom, who has signaled that he would like to forge a compromise with app-based tech companies, nonetheless offered a strong endorsement of the bill. He noted misclassified workers “lose basic protections like the minimum wage, paid sick days and health insurance benefits.”
“Employers shirk responsibility for safety net programs like workers’ compensation and unemployment insurance. Taxpayers are left to foot the bill.”
The legislation was pushed by a powerful coalition of labor unions, many of which have suffered stagnating membership as companies classify large chunks of their workforces as independent contractors. Under federal law, only employees can join unions and collectively bargain for wages and benefits.
In one letter to lawmakers, California building trades unions, representing 450,000 Teamsters, roofers, painters, boilermakers and other workers, called construction “the original gig economy,” noting “our employers face intense competition from the underground economy … unscrupulous contractors that win bids by misclassifying workers.”
The group warned against carving out tech-platform companies from the legislation, adding, “These companies are already providing misclassified workers for residential and commercial construction.” Handy, a company which has promoted bills to protect independent contracting across the country, offers bathroom and kitchen remodeling and “major renovations” on its website.
In recent months, groups of Uber and Lyft drivers formed a caravan to Sacramento, protesting slashed pay, arbitrary terminations and urging lawmakers to classify them as employees and allow them to unionize. Other ride-hailing drivers held rallies advocating contractor status, touting the flexibility of working when they please.
Lobbying against AB 5 was vociferous with the California Chamber of Commerce and some 15 trade groups pressing for exemptions. Trucking associations filed suits over the new misclassification rules and fleets of independent owner-operators circled the Capitol in their big rigs, horns blaring.
Newspapers posted editorials seeking exemptions for part-time delivery workers and the California News Publishers Assn. ran full-page ads claiming AB 5 would put many newspapers “out of business.” In the end, the group was promised a one-year reprieve from enforcement.
But the most powerful resistance was coordinated by Uber and Lyft, which have lost hundreds of millions of dollars since going public this year. Their chief executives declared that employee status for drivers “would pose a risk to our businesses.”
For months, the ride-hailing executives met with Newsom’s top aides seeking support for a special employment category that would exempt them from employee-based labor rules. When legislators refused, the companies, along with DoorDash, threatened to spend $90 million on a ballot initiative next year unless a separate bill is enacted.
The court decision that led to AB 5 involved a package-delivery business, Dynamex Operations West. The company reclassified its employees as independent contractors, slashing their benefits and forcing them to use their own vehicles and pay for gas.
Under the court’s new test, a worker is an employee if his or her job forms part of a company’s core business; if the bosses direct the way the work is done; or if the worker has not established an independent trade or business.
The new “ABC test,” as it is called, replaces an 11-point standard set in a 1989 court case that “made determining who was or was not an independent contractor complicated, expensive, and prone to litigation,” according to the state Senate analysis of AB 5.
But while the Dynamex decision applied only to rules governing minimum wages, overtime and meal and rest breaks, AB 5 goes further. Under the legislation, workers classified as employees must also be afforded workers’ compensation in the event of an industrial injury, unemployment and disability insurance, paid sick days and family leave.
Businesses say the extra benefits add as much as 30% to their labor costs.
But AB 5 is narrower than the court decision in key respects. After months of negotiations, the bill’s author, Gonzalez, agreed to exempt a score of occupations from the court’s ABC test, leaving them subject to the earlier standard.
The exempted workers include doctors, dentists, lawyers, engineers, accountants, architects, Realtors, travel agents, graphic designers, human resources administrators, grant writers, marketers, fine artists, investment advisors and broker-dealers.
Several exemptions come with conditions. Commercial fishermen are exempt except from unemployment insurance. Barbers, cosmetologists and manicurists are exempt only if they set their own rates, are paid directly by clients and schedule their own appointments.
Salespersons are exempt, provided their pay is based on actual sales, rather than wholesale purchases or referrals. Freelance writers and photojournalists are exempt only if they submit 35 or fewer articles or photographs in a year.
