California Gov. Gavin Newsom on Wednesday signed legislation intended to force "gig economy" businesses such as Uber and Lyft to classify their workers as employees, not contractors. The legislation, AB 5, upends the business model for those companies, forcing them to comply with state and federal rules for overtime, the minimum wage, and other worker benefits that typically do not apply to contractors.
"Assembly Bill 5 is landmark legislation for workers and our economy. It will help end worker misclassification — workers being classified as 'independent contractors' rather than employees," Newsom said in a signing statement. "A next step is creating pathways for more workers to firm a union, collectively bargain to earn more, and have a stronger voice at work, all while preserving flexibility and innovation."
The legislation passed the state legislature last week. It was staunchly opposed by the gig economy companies, who argued it would limit their ability to hire drivers and undermine flexibility those drivers enjoyed.
"We are fully prepared to take this issue to the voters of California to preserve the freedom and access drivers and riders want and need,” Lyft said after it passed the assembly.
Uber's chief legal officer Tony West said last week that the company would continue to classify its drivers as contractors. He said that "just because the test is hard doesn’t mean that we will not be able to pass it. In fact, several previous rulings have found that drivers work is outside the usual course of Uber’s business which is serving as a technology platform for several different types of digital marketplaces."
The legislation has been championed by Democratic presidential candidates, Sens. Elizabeth Warren of Massachusetts, Bernie Sanders of Vermont, and Kamala Harris of California.