California Challenges The Gig-Economy Giants

California moves to reclassify freelance contractors as employees.

Starting this year, a new California law requires companies to treat certain types of independent contractors as employees, providing them with such benefits as sick leave, vacation time and health insurance. Several other states appear to be following suit, with bills in play in New Jersey and New York.

Under the new law, contractors in the Golden State are employees if the company controls how they perform their tasks or if their work is a part of the company’s regular business. The change threatens the business model of companies like Uber and DoorDash, which are built on the use of temporary workers. While the law exempts some types of sole-proprietor businesses, including accounting and law firms, many other types of independent workers—ranging from truckers to freelance writers—fall under the new law.

Jim Paretti, former senior counsel at the US Equal Employment Opportunity Commssion, now an attorney at Washington, DC-based employment law firm Littler Mendelson, says that many exceptions added at the last minute suggest the legislation was poorly thought-out.

The move aligns with a global trend of governments adjusting legal structures to meet evolving employment structures. Earlier this year, the EU adopted new rules granting certain rights to workers in atypical contracts. Globally, some countries have granted quasi-employee status to certain categories of contractors or created a third category of worker altogether, according to a recent report by the International Bar Association Global Employment Institute. Efforts to unionize gig workers in several countries, including Canada and South Korea, are also underway.

Paretti expects the issue to stay in the spotlight—and stay fluid. “This is a work in progress,” he says. Gig companies and professional groups that represent contractors have already sued to block the California law. They are also trying to put a measure overturning the law onto the California ballot this fall.

Meanwhile, Paretti cautions, employers should pay extra attention to how they structure relationships with contractors to make sure they are truly independent.