Dump-truck driver Thang Nguyen thought he was planning ahead earlier this year when he spent more than $200,000 on a new vehicle to comply with California’s strict emission standards. Now he is worried a new state law will make it difficult to find enough work to afford the repayments on the truck.
Mr. Nguyen is one of many independent contractors in America’s most populous state and the world’s fifth-largest economy caught in uncertainty surrounding a law passed by the legislature in September and signed soon after by Democratic Gov. Gavin Newsom.
The debate around Assembly Bill 5, or AB5, as it is known, largely centered on gig-economy workers such as ride-share and food-delivery drivers. It requires employers to reclassify many of them as employees rather than independent contractors, giving them access to minimum wage and overtime laws, workers’ compensation coverage and paid sick days.
However, just weeks before the law goes into effect on Jan. 1, employers and workers in other industries including truck drivers, therapists, and entertainers say it is unclear how AB5 will affect them, leading some to take precautionary measures and others to say they hope a court will clarify the matter soon.
How the outstanding questions about AB5 get resolved in the coming months could have national implications, as lawmakers in other states including New York and New Jersey consider similar legislation.
“There’s just a lot of fear, chaos, confusion about how this law is going to impact people,” said Chris Shimoda, vice president of government affairs for the California Trucking Association. The organization has filed a suit arguing federal laws governing trucking and interstate commerce exclude truck drivers. A hearing is scheduled for Dec. 30.
Uber and Lyft, along with several other gig economy companies, have put together more than $100 million to spend on a ballot measure that would exempt them from the law. They argue AB5 could force them to raise prices, introduce hourly schedules and make other changes that take away the flexibility they say many drivers want.
More than 2.8 million Californians earned income in 2016 for nonemployee work, including freelance projects, independent contracting and gig-economy labor such as ride-share driving, according to economists who analyzed Internal Revenue Service data. That is nearly 14% of workers in the state who filed taxes or received tax documents from employers and clients.
“AB5 is going to radically change any industry in California that uses independent contractors or freelancers,” said Tricia Legittino, a California-based partner with law firm Frankfurt Kurnit Klein & Selz PC.
Among the concerns of her corporate clients, she said, is whether the law applies retroactively, which would allow workers to sue employers for classifying them as independent contractors in prior years. That question will be argued in a case set to be heard before the California Supreme Court.
The cost for employers can be significant. In a hypothetical example offered by accountants at tax consulting firm CliftonLarsonAllen LLP, a California firm paying a contractor $150,000 for a year of services would end up paying around $161,000 after factoring in state and federal tax obligations. Benefits might add an additional 15% to 20%.
Ms. Legittino expects to see a wave of lawsuits from workers and government agencies seeking clarification from judges on who must be reclassified as full-time workers.
Therapist Avo Soltanian, who practices in the Los Angeles suburb of Glendale, said he isn’t sure he will be able to turn a profit under the new law. Its exemption for psychologists doesn’t appear to apply to his practice, Anchor Counseling Group, which includes four other licensed therapists.
He plans to convert the status of all four therapists to part-time employees as of Jan. 1, because the law would no longer allow him to claim them as contractors in a group practice. He estimates the move will add at least 15% to 20% to his costs. “We are going into uncharted waters,” he said. “If I see that my profit margin is getting so small, it is not worth my efforts.”
Other contract workers welcome the change, arguing that they have been denied essential protections. “This is something we wanted for the last few years,” said Alana Evans, an adult-film actress. She says benefits like workers’ compensation are critical to performers whose work is physically demanding and sometimes risky.
Mr. Nguyen, a Vietnamese refugee who lives in San Leandro, near Oakland, has been an independent owner-operator for more than 15 years. The flexible hours allowed him and his wife to split child-care shifts when their children were young. In a good month, he says, he can net as much as $13,000.
“Now they’re telling me, ‘You have to go drive for somebody,’ so what am I going to do with my truck?” Mr. Nguyen said. “It’s kind of unfair to me.”
March is the start of his busy season. If he can’t find enough work by January or February, he said he is considering moving his family to Nevada or Arizona.
Truckers are one of several professions whose trade organizations are seeking exemptions from the law. When it passed, it excluded certain high-paid professionals who are often self-employed, including physicians, lawyers, and architects.
Democratic Assemblywoman Lorena Gonzalez, the author of AB5, said legislators took hundreds of meetings with stakeholders before passing the law and adding exemptions now could weaken it.
Ms. Gonzalez said that it is “rational” for people to be concerned about how the law might affect them, but “Other people have benefited from this and we’re not going to wipe that out.”