California Contractor Bill Will Have Far-Reaching Impact, Associations Say

Several associations are raising concerns about a recently passed California measure that was touted as targeting gig economy businesses, saying it could bring new costs and workforce challenges in many other industries that rely on contractors.

A measure passed  by California lawmakers last month that redefines certain contractors as employees under state law has raised concerns for trade groups that say their industries may be hit by unintended consequences.

Assembly Bill 5—passed after the California Supreme Court upheld a standard for defining who is an employee as opposed to an independent contractor—requires that employers extend benefits such as health insurance, overtime pay, and minimum wage to workers previously considered contractors. While touted by supporters as improving the terms of employment for gig economy workers, the bill—expected to be signed by Gov. Gavin Newsom shortly—will likely affect a diverse range of industries, many of which raised objections to the bill as it worked its way through the legislature.

The newspaper industry, for example, says the new law will drastically raise the cost of using freelance editorial workers and contract employees who deliver the morning paper. The California News Publishers Association sought exemptions for both. In its final form, the bill exempts freelancers who who produce fewer than 35 submissions in a year, and at the last minute lawmakers agreed to a one-year exemption for newspaper carriers.

“Keep in mind that the independent contractor model used to deliver newspapers to homes has been in place since the birth of the nation,” CNPA General Counsel Jim Ewert said in comments to The New York Times. “The model is not part of the gig economy. It’s not Uber and Lyft. It’s certainly not some recent invention by newspapers to circumvent labor laws in California.”

The trucking industry is also raising the alarm, saying that the “ABC test” for determining whether a worker is an employee or contractor—adopted by court and codified in the bill—will likely prevent the industry from continuing to use contractors as drivers. Last week, California Trucking Association CEO Shawn Yadon said the bill went too far.

“AB 5 could have been amended to address worker misclassification issues, as well as protect the 70,000 [predominantly minority] truckers currently operating as independent contractors,” Yadon said in comments reported by Transport Topics. “There is no reason why protecting workers does not include defending the right of tens of thousands of drivers who have built their businesses as independent truckers, invested hundreds of thousands of dollars in clean trucks, and have operated successfully.” He added that the bill will worsen California’s shortage of truck drivers.

Representatives of the franchising and healthcare fields are also speaking up.

“It’s not an exaggeration to say that AB5 would forever change the California economy if it isn’t amended to exempt the franchise business model,” International Franchise Association Senior Vice President of Government Relations and Public Affairs Matt Haller said in a statement. “California’s 75,000 franchise businesses and their nearly 730,000 employees would be subject to new laws that would undermine their very ability to operate.”

California Hospital Association Vice President of Labor and Employment Gail Blanchard-Saiger noted to CalMatters that while most people who work in the healthcare field would not be affected, a large percentage of those that would are located in rural areas. “The impact on the hospital for these health professionals is probably a delay in services and in particular rural communities maybe a reduction in services,” Blanchard-Saiger said.

The bill includes many exemptions, including for professional services contractors, real estate agents, lawyers, barbers, and tutors.

The California State Capitol Building. (KingWu/iStock/Getty Images Plus)

Ernie Smith

By Ernie Smith

Ernie Smith is a former senior editor for Associations Now. MORE

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