Most individuals who acted as independent contractors in California will be reclassified as employees on January 1, 2020 after AB-5 was signed into law by Governor Newsom on September 16, 2019.  Labor leaders and union advocates advanced this bill to increase wages and benefits for workers in the “gig economy” (work per-job basis) which most commonly is seen with companies like Uber and Lyft.  AB-5 creates a rule that presumes all workers are employees, entitled to all employee protections and benefits, unless they meet strict criteria as truly independent contractors.  California hopes to tax the estimated $7 billion/yr. in personal income that has not been subject to payroll tax.

Workers who choose to be independent contractors, such as delivery drivers, health aides, construction workers, manicurists, computer programmers, trucking owner-operators and physical therapists, will earn minimum wage, receive overtime, vacations and insurance benefits, but lose their flexibility to set work hours, decline jobs, or take advantage of lawful business and income tax opportunities.  Plus, there is an additional cost to each business to treat contractors as employees, and this will be reflected in consumer pricing.

The California Trucking Association, which sought unsuccessfully to carve out exemptions for independent truckers, said the measure “would deny a significant segment of the trucking industry” that have invested tens of thousands of dollars in equipment “the ability to continue operating as independent owner-operators.”  And, of course, the cost of goods to the consumer will increase to cover these benefits.

In a statement after the bill was passed, Lyft said: “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.”  Uber and Lyft have committed $60 million to fight AB-5 with a ballot measure but it is unlikely that the proposition will extend to non-rideshare drivers.

To review the full bill, click here. To read more information about the reach of AB5 from the perspective of the Society of Human Resource Management, which offers a non-partisan perspective, click here.