California residents working for companies like Lyft and Uber would get the rights of employees entitled to a minimum wage and workers compensation under a law the state Assembly passed on Wednesday.
The sweeping bill, which now goes to the Senate, carries new standards defining whether workers are employees or independent contractors, upending how workers are treated in industries from trucking to the burgeoning gig economy.
Under those standards, for example, workers could only be classified as independent contractors if they are free from the control or direction of an employer and they do work outside a company’s usual course of business.
The measure, Assembly Bill 5, includes exemptions for some sectors, such as physicians and insurance agents.
Democrats and major labor unions backing the bill contend it will protect workers’ rights.
“Big businesses shouldn’t be able to pass their costs onto taxpayers while depriving workers of the labor law protections they are rightfully entitled to,” said Assemblywoman Lorena Gonzalez, a Democrat from San Diego who authored the bill.
Many industries have raised concerns, however, arguing that hiring independent contractors provides flexibility for companies as well as workers.
The ride-hailing company Lyft issued a statement shortly after the bill passed, emphasizing its opposition and contending that the legislation would force many of its drivers to become employees.
“Lyft drivers overwhelmingly prefer the freedom of working where, when and how much they want,” the company said.
One sector after another has sought exemptions to the proposed law. The California News Publishers Association has sought an exemption to cover freelance journalists and newspaper carriers.
Companies are responsible for covering Social Security and Medicare taxes, unemployment insurance as well as workers compensation for employees.
Gonzalez said the bill is a work in progress and can change.
Still, Gonzalez said setting clear standards in law for labeling workers as independent contractors would give certainty to businesses following a California Supreme Court ruling last year on the issue.
California is home to many of the companies that gave rise to the gig economy. Silicon Valley is a political force in California’s capital but so, too, is labor.
The bill comes as companies like Uber and Lyft are facing mounting pressure. Drivers for the companies went on strike and staged protests in major cities earlier this month to draw attention to precarious working conditions as well as the financial pressures of gig work.