Gig economy under threat as California rules on contractor status

The future of the gig economy was put in doubt this week. Lawmakers approved legislation that requires companies to convert their independent contractors into employees instead, giving them a host of rights and perks. This would have serious implications for the likes of Uber and Lyft in the US state when the law is introduced at the start of 2020.

The AB 5 legislation applies an “ABC test” to determine which workers can be classified as independent contractors and would put the burden of proof on employers. The bill should secure labour protections like minimum wage, overtime and workers compensation for more than one million Californians.

Independent contractors don’t qualify for such rights, which is why they are so much cheaper for companies to hire. The US-based National Employment Law Project estimates businesses save roughly 30% in costs when they work with independent contractors instead of hiring employees.

The bill could set a precedent in the national fight being waged by gig workers across the US. If they win, it could cost companies millions of dollars and disrupt the business models of app-based services that rely on cheap contract labour.

Uber argues its workers classify as contractors under the legal definition but other companies are not as confident.