California Governor, Gavin Newsom, recently signed a new bill that makes it more difficult for companies to classify their workers as independent contractors rather than employees.  This legislation is expected to change the employment status of more than a million workers across California. As a result, these workers will be eligible for workplace benefits that they weren’t previously receiving as contractors – including minimum wage, paid sick days, health insurance benefits and Workers’ Compensation.

This new law is scheduled to take effect on January 1, 2020.  It’s unclear when these workers would “officially” be reclassified, especially since litigation around this bill is likely.

According to the new law, workers that perform functions that are “integral” to a company’s business are employees, not contractors.  The impact of this bill will be huge, as many workers across California would change their status, suddenly receiving employee benefits like paid parental leave, overtime pay, Workers’ Compensation, and a guaranteed $12 minimum hourly wage.

Supporters of the new law say that tremendous numbers of workers across the state are misclassified and wrongly treated as independent contractors and, thus, are denied necessary benefits.  This law would provide them with game-changing benefits and pay increases. Presidential candidates Sen. Elizabeth Warren, Sen. Bernie Sanders, and Sen. Kamala Harris are pledging their support for the bill, elevating this issue to a national stage.

Gig economy workers, such as ride share and app-based delivery drivers, are among the bill’s supporters, arguing that they deserve employee benefits.  In fact, San Diego City Attorney, Mara Elliott, recently filed a lawsuit on behalf of gig economy workers at Instacart – a popular grocery delivery company.  In her filing, Elliott alleges that Instacart is wrongly classifying their employees as independent contractors so they can avoid offering them benefits, such as insurance and overtime pay.

A 2018 study by the Public Religion Research Institute found that nearly half – 48% – of gig economy workers (i.e. drivers and delivery people) in California are experiencing poverty, thanks to companies like Uber who refuse to pay their California drivers the minimum wage, overtime, expense reimbursements, or offer them insurance.

Juggernaut gig economy companies – like Uber, Lyft, Postmates and DoorDash – are threatened by this bill, have vocally opposed it, and plan to spend upwards of $90 million to fight it.   Their business models rely on flexible labor and minimal worker costs.  They maintain that since their workers are not “integral” to their businesses, they should be classified as contract workers that are not entitled to employee benefits.  These companies say that if they’re forced to spend more money on employee benefits as a result of this new bill, customer costs will rise accordingly.

While the new law outlines details about who should be considered independent contractors vs. employees, there are exceptions that may make this new law challenging to enforce.  Dozens of professions are exempt; including insurance brokers, doctors, lawyers, architects, engineers, veterinarians, accountants, barbers, real estate agents, and more.

This new bill in California will likely set new standards for other states in the future. It will be interesting to see which other states follow suit.  Regardless of the outcome, Risk Innovations is standing by to assist with all of our agency partners Workers’ Compensation needs.