California Bill Would Significantly Change the Definition of an Employee

California businesses who rely on “gig workers” to perform the work for the company may soon need to restructure their business model based on a new bill that has been passed by Congress in California and is expected to be signed soon by Governor Gavin Newsom. This new bill would require that companies using these “gig workers” (the two biggest companies being Uber and Lyft) reclassify their workers to be considered employees rather than continue to be classified as independent contractors.  

It’s important to note that this would only apply to California workers. The National Labor Relations Board (NLRB) ruled earlier this year that Uber drivers (and similar workers) were independent contractors because they used their own equipment, set their own schedules, could work for competitors, and were responsible for their own profit and/or loss.

The issue that California sees with these workers being classified as independent contractors rather than employees is that the workers are performing functions that are essential to the company’s mission. The new bill states that workers performing activities that are the fundamental function of a company should be classified as employees.

While Uber and Lyft are the two largest and most well known of the companies affected, there are many other companies in many other industries that are affected such as janitorial workers, hair dressers, franchise owners, music workers, truck drivers, and a variety of other industries.

If the bill is signed into law, the newly classified employees must be paid at least minimum wage, overtime must be paid to employees working more than 8 hours per day, employers would be responsible for paying and withholding employee and employer taxes from employee payroll checks, the California paid sick leave requirement would apply, as would state disability insurance deductions, and a variety of other implications. The cost for companies to do business would increase and would likely result in increased pricing for consumers which would result in a big hit to the “gig” economy.

Many of the current “gig workers” are opposed to this pending bill because they would no longer have the same flexibility in scheduling as is available now through these types of jobs and it would likely more difficult to use this type of work as a side source of income in addition to their primary job.

California could potentially be just the first state to enact this type of legislation that would eliminate “gig workers” so business owners throughout the country may be subject to similar laws in the future if their states or the federal government enact similar laws.