The NCSL Blog

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By Loryn Cesario

The rise of the gig or on-demand economy has triggered a host of new legislation dealing with how the more than 15 million workers participating in these jobs are classified.

Supporters of a bill that reclassifies contractors as employees gathered outside the State Capitol in Sacramento last month. CreditRich Pedroncelli/Associated PressCalifornia has undertaken significant policy changes with AB 5. The proposed bill follows a recent state Supreme Court decision in Dynamex Operations West, Inc. v Superior Court of Los Angeles.

Governor Gavin Newsom (D) has indicated he will sign the legislation once it reaches his desk.

The court’s opinion establishes a three-part test to determine if workers are properly classified as independent contractors or should otherwise be classified as employees of companies such as Lyft, Uber and DoorDash. If an independent contractor fails to meet any part of the three-prong test, the legislation holds the worker should be classified as an employee. In order to be considered independent contractors, workers must:

  • Be free from the company’s "control and direction" in their work.
  • Be engaged in work outside "the usual course" of the company’s line of business.
  • Be engaged independently doing work similar to the work they are doing for the company.

Legislation such as AB 5 looks to bridge the gap between the on-demand economy and traditional employment regarding benefits and protections such as unemployment insurance, workers’ compensation, minimum wage protections, retirement and medical benefits, among others.

Other states have introduced, and some have enacted, legislation addressing some of these smaller pieces of the employer-employee relationship, though none so far have been as sweeping as AB 5.

Nevada enacted legislation to create a worker misclassification task force. Wisconsin Governor Tony Evers (D) issued an executive order creating a similar task force to examine worker misclassification and payroll fraud.

While AB 5 is likely to be enacted, it remains to be seen if companies opposed to the legislation will be successful in repealing it by ballot measure.

Uber, Lyft and DoorDash have pledged to spend $90 million to support a ballot measure exempting them from AB 5. What is certain is that states will continue to wrestle with several aspects of employment legislation while the on-demand economy continues to grow.

Loryn Cesario is a policy associate in NCSL’s Employment, Labor & Retirement Program.

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About the NCSL Blog

This blog offers updates on the National Conference of State Legislatures' research and training, the latest on federalism and the state legislative institution, and posts about state legislators and legislative staff. The blog is edited by NCSL staff and written primarily by NCSL's experts on public policy and the state legislative institution.