California Lawmakers Pass Bill That Could Upend Uber, Lyft Model

If signed by the governor, the legislation would force tech companies to reclassify independent contractors as employees and provide them with additional benefits.

California lawmakers passed legislation Tuesday evening that would reclassify many gig economy workers from independent contractors to employees, guaranteeing them labor protections and benefits ― and potentially upending the business models of tech companies like Uber and Lyft.

The California Assembly gave final approval to the bill on Wednesday, and it will next go to Democratic Gov. Gavin Newsom, who is expected to sign it

The legislation, AB-5, clarifies the conditions under which a worker should be considered an employee ― and therefore entitled to benefits like a minimum wage, unemployment and disability insurance, and a right to form a union. It follows an “ABC” formula that workers can be considered independent contractors (A) only if the workers are “free from the control and direction” of the company that hired them, (B) their work falls outside the usual business of the company and (C) they are engaged in work in an independent business of the same type as the company’s.  

It makes exceptions for certain groups of workers, including real estate agents, freelance writers, hairstylists and barbers who set their own rates and hours.

The language of the bill is based on a 2018 California Supreme Court decision in the case of Dynamex Operations, which established the ABC test for classifying workers as employees versus contractors. 

“The misclassification of workers as independent contractors has been a significant factor in the erosion of the middle class and the rise in income inequality,” the bill says. 

Major tech companies such as Uber and Lyft, whose hordes of drivers are currently considered independent contractors, have been lobbying against the legislation. Their companies’ bottom lines would be dramatically affected by having thousands of drivers newly classified as employees for whom they’d have to pay certain benefits, overtime, minimum wages and more.

A legal representative for Uber said in a press call Wednesday that the company would not be reclassifying drivers as employees when the bill goes into effect in January, claiming they are essentially exempt from the bill’s requirements because “drivers’ work is outside the usual course of Uber’s business.” 

Hundreds of Uber and Lyft drivers with the organizing group Gig Workers Rising protested throughout California in late August, demanding AB-5’s passage and a union for drivers.   

The legislation passed the California Senate in a 29-11 vote after overwhelmingly passing in the Assembly in May.

Rideshare drivers hold signs during a protest outside Uber headquarters in San Francisco in support of California labor legis
Rideshare drivers hold signs during a protest outside Uber headquarters in San Francisco in support of California labor legislation and a union push.

Several Democratic presidential candidates have come out in support of the bill and workers’ demands, including Sens. Kamala Harris (D-Calif.), Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.), and South Bend, Indiana, Mayor Pete Buttigieg

“American history is full of shameful examples where powerful industries exploited workers in pursuit of greater profits,” Warren wrote in an op-ed in the Sacramento Bee in August. “In many industries today, it takes the form of worker misclassification.”  

Exactly how the law would affect rideshare companies and their drivers when applied in practice is still unclear. Uber, Lyft and other companies have committed tens of millions of dollars to back a ballot initiative that would push a separate classification for rideshare drivers. 

The heads of Uber and Lyft have argued for workers to remain as independent contractors, suggesting that as employees they wouldn’t enjoy as much flexibility and proposing that the companies could meet some of the workers’ demands by establishing a drivers’ association and working with lawmakers to commit to things like minimum pay.  

Driver-led group Gig Workers Rising called the tech leaders’ proposals “a watered-down version” of the demands drivers have been making for months. One organizer, Annette Rivero, told TechCrunch that there was “no truth” to the companies’ claim that the legislation would affect drivers’ flexibility

“After I did my taxes, I was operating below minimum wage,” driver and organizer Mostafa Maklad, 35, told HuffPost during protests at Uber’s headquarters in May. He’s been driving for Uber and Lyft for the past four years, studying at City College of San Francisco by day and driving 40 to 50 hours a week by night. Maklad said he struggles to afford housing in San Francisco and lives with six other people in a two-bedroom apartment.

This article has been updated to include the bill’s final approval in the Assembly and Uber’s response in a press call Wednesday.