Worker vs. Employee — The New Limit On The Gig Economy

California passes a new labor bill that stands to affect businesses built on the foundation of the gig economy.

What’s new in employee laws — let’s recap

In last week’s state legislature, California passed gig worker bill AB-5 changing the landscape for the gig economy, and the companies and workers that make up gig work.

Is gig work considered to be a job?

The gig economy is a huge facet of the country’s workforce and revenue. At the same time, it builds the foundation of many business models who rely on these types of workers.

If businesses cannot answer to the criteria of the new legislation’s outlook on contracted workers, then this could reshape the financial implications of these companies — with an increase of 30% in costs, experts estimate.

What do companies need to show about their gig workers?

Companies working with independent contractors that want to continue classifying these workers as such need to be able to prove a three-part criteria. This is known as the “ABC Test.”

A) Workers are free from the company’s control.

Companies cannot manage contractors in the same way they would other employees.

B) Workers are performing work that is outside the company’s usual course of business.

Companies need to show that their contracted workers are doing work that isn’t central to the company’s business.

C) Workers work independently of the business in that industry.

Independent contractors will need to perform the work that they do outside of their contracted job. Companies need to prove that workers are “customarily engaged in an independently established trade.” For example, a chef doing contract food preparation is still a contractor.

Who does the gig worker law affect?

California’s law could inspire similar legislation across the country. This domino effect could influence the entire shape of the gig economy.

Already in New York, a coalition consisting of various labor groups is pushing for similar legislation. Similar bills were pushed forward in Washington State and Oregon, and although they were unsuccessful in their attempts, efforts could be renewed with California’s success.

In the state of California, this legislation will affect at least one million workers.

The legislation particularly affects startups, mobile apps and businesses using contract and flexible workers for independent labor and services.

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