Sept. 18 (UPI) -- California Gov. Gavin Newsom signed a bill Wednesday requiring companies to define independent contractors as employees if the companies hired the workers for their primary business and directly controlled their work.
"It will help reduce worker misclassification -- workers being wrongly classified as 'independent contractors,' rather than employees, which erodes basic worker protections like the minimum wage, paid sick days and health insurance benefits," he said. "The hollowing out of our middle-class has been 40 years in the making, and the need to create lasting economic security for our workforce demands action. Assembly Bill 5 is an important step."
The State Senate passed the bill on Sept. 11. It will affect roughly 1 million Californians working for so-called gig-economy companies such as Lyft and Uber, ride-sharing businesses that use independent contractors for their workforces.
The California Labor Federation at the time called the bill's passing "a historic win" that makes the state a leader in workplace rights and sets an example for the rest of the United States.
"The misclassification of workers creates a corrosive effect that ripples through our entire economy, undermining our laws to protect and support working people," the workers' rights organization said. "AB 5 is a powerful counter to the corporate greed and rampant exploitation that's driving inequality across our state in emerging and traditional industries alike."
The two ride-sharing companies strongly opposed the legislation. Uber CEO Dara Khosrowshahi, Lyft CEO Logan Green and Lyft President John Zimmer wrote in an op-ed in the San Francisco Chronicle in June that the measure would cause them harm.
Newsom said a next step was "creating pathways for more workers to form a union, collectively bargain to earn more, and have a stronger voice at work -- all while preserving flexibility and innovation."
"In this spirit, I will convene leaders from the Legislature, the labor movement and the business community to support innovation and a more inclusive economy by stepping in where the federal government has fallen short and granting workers excluded from the National Labor Relations Act the right to organize and collectively bargain."
The Internal Revenue Service says it's "critical that business owners correctly determine whether the individuals providing services are employees or independent contractors" and lays out criteria for making the determination.
Darryl Coote contributed to this report.