How a New California Bill Could Change Uber and Lyft

For years, rideshare companies like Uber and Lyft have classified their drivers as “independent contractors.” Rideshare drivers had few protections under the law. They couldn’t form a labor union and often had liability in case of a crash. California plans to change that and disrupt the entire “gig economy” in the process.

The Law

On September 18, California Governor Gavin Newsom signed Assembly Bill No. 5. This bill expands the definition of an “employee.” The bill will go into effect on January 1, 2020.

All California businesses using independent contractors must now use the “ABC” test to determine whether workers are actually employees. Under the new law, employees include almost anyone who works for a company.

If a business wishes to demonstrate a worker is an independent contractor, they must meet three criteria, for which they hold the burden of proof. Under the new California law, an independent contractor is someone who,

A: Is free from the company’s control and direction

B: Does non-critical work for the business.

C: The contractor has an independent business (traveling salespeople, freelance writers, etc.)

The Impact

If someone receiving remuneration from a business does not meet all three of those criteria, they will become employees. Moreover, employees receive different protections under the law. They can form unions and are eligible for benefits, paid time off, and five days of annual sick leave, as mandated by California law.

Moreover, Uber and Lyft’s insurance policies may have to expand to cover their new employees at every point of the rideshare process, rather than the four periods as they have now. This could, potentially, increase liability payouts for those injured in rideshare accidents.

Starting on January 1st, rideshare drivers in California should become employees and will enjoy new benefits and protections under the law. However, Uber and Lyft have made it clear that they intend to fight this new legislation and potentially obtain an exception.