California legislators approved a landmark bill on September 11, 2019 which requires companies like Uber and Lyft to treat contract workers as employees.   The bill was signed into law on September 18, 2019 by Governor Newsom and will go into effect January 1, 2020.

The Bill is expected to have wide reaching implications, particularly for businesses that rely on independent, on-demand labor. Companies such as Uber and Lyft have vocally opposed the bill. Under the bill, workers must be designated as employees instead of contractors if a company exerts control over how they perform their tasks or if their work is part of a company’s regular business.

New York, Oregon, and Washington considered similar legislation, but it failed to advance. The California bill may influence these and other states to reconsider similar legislation. The new law and publicity around it may also draw additional scrutiny to other businesses that rely upon so called “gig” workers, who are often classified as independent contractors. Firms that utilize these workers are often only narrowly able to defend the practice in the light of existing state and federal rules that require the worker maintain “independence” from the company to avoid classification as an employee.

It is unclear how gig economy companies will react to this new law.  Unlike independent contractors, employees are usually entitled to minimum wage, overtime compensation, matching payroll taxes, workers’ compensation coverage, unemployment benefits and depending on the size of the company and hours worked, health insurance. Industry officials have estimated it could raise costs by 20 to 30 percent.