California Senate Passes Gig Economy Bill That Could Transform Uber And Lyft

(CNN) -- The California state senate passed legislation late Tuesday that could transition tens of thousands of ride-share drivers from independent contractors into full-time employees. The bill, if enacted, could profoundly change the fortunes of transportation companies like Uber and Lyft and their drivers.

The law would change California employment practices by making it more difficult for employers in the state to treat their workers as independent contractors. Those "gig economy" workers don't enjoy many of the rights employees do, such as a minimum wage, overtime pay, workers' compensation, unemployment insurance and paid sick leave. Independent contractors also pay their own expenses.

The bill, known as AB-5, still needs to pass the state assembly. That vote is expected to take place by the close of the legislative session this week. California Governor Gavin Newsom has previously expressed support for the legislation and is expected to sign it.

Drivers have been fighting for better treatment for several years. In May, drivers in a dozen cities around the world went on strike, pushing for better pay and improved working conditions.

Many online labor platforms have said they consider the independent contractor relationship key to their business model. Providing benefits and rights to which an employee would be entitled can be costly. The companies say independent contractor status gives drivers the freedom to set their own schedules and work for multiple companies at the same time.

Lyft indicated in a response that they are ready to fight back against the legislation. Adrian Durbin, senior director of communications for the company said the state "missed an important opportunity to support the overwhelming majority of rideshare drivers who want a thoughtful solution that balances flexibility with an earnings standard and benefits."

"We are fully prepared to take this issue to the voters of California to preserve the freedom and access drivers and riders want and need," Durbin said.

Companies opposed to the bill waged a very public and well-funded campaign to prevent its passage.

In June, the the CEO of Uber, Dara Khosrowshahi, and the cofounders of Lyft, Logan Green and John Zimmer, wrote an op-ed in the San Francisco Chronicle arguing that being required to classify drivers as employees instead of independent contractors would "pose a risk to their businesses" and ignored two important points.

"First, most drivers prefer freedom and flexibility to the forced schedules and rigid hourly shifts of traditional employment," Khosrowshahi wrote. "And second, many drivers are supplementing income from other work."

California has pushed back on the growth of the gig economy before. In 2018, the California Supreme Court changed the requirements companies must use to label their workers as independent contractors.

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