California Democrats are poised to pass landmark employment legislation over the objections of two of the companies that would be most affected: Silicon Valley ride-sharing giants Uber Technologies Inc. and Lyft Inc.
The bill already passed the State Assembly 59-15 and is expected to be voted on in the state Senate before the legislative session ends on Friday, possibly as soon as Monday night.
Democratic Gov. Gavin Newsom has said he would sign the bill, which intends to force companies that rely on “gig workers” to reclassify them as employees, likely upending the business model of those companies.
Uber and Lyft have spent much of the year pushing lawmakers to alter the bill or exempt them. That effort has failed against opposition from labor unions and a large Democratic majority in Sacramento.
The companies have argued the bill would introduce new costs and logistical challenges that would be bad for them and many of their employees, who prefer job flexibility. If the measure becomes law, it is expected to have national repercussions given California’s economic importance and history of creating precedent-setting business regulations.
“What California does here is being watched by the rest of the nation,” said Ken Jacobs, chair of the Labor Center at the University of California, Berkeley. “What happens here is likely to affect what other states do and—depending on what happens in the upcoming elections—what Congress does.”
While Uber and Lyft have been the bill’s most active opponents, the measure also could force the reclassification of workers in other industries from trucking to janitorial services to music workers, according to Dr. Jacobs and business representatives.
Democratic Assemblywoman Lorena Gonzalez introduced the bill last December to codify a 2018 California Supreme Court decision that set new standards for classifying people previously considered independent contractors as employees. Activists and some lawmakers seized on the decision, which sprang from a case that began in 2005, as an opportunity to tackle fast-growing tech companies that relied on large pools of contractors.
“California has kind of looked the other way as this industry blew up, shame on us for not addressing this sooner,” Ms. Gonzalez said.
As employees, ride-share drivers would be entitled to benefits such as a minimum hourly wage and workers compensation.
But the companies have argued the bill would take away much of the flexibility of drivers, who now work whenever they want and can earn more when demand jumps.
Lyft in particular has said that the bulk of its roughly 325,000 California drivers—most of whom are part time—would no longer be able to drive for the company if they were employees, because it would need to start scheduling shifts. “The vast majority of job opportunities would go away under an employment model,” a Lyft spokesman said. “Costs would also be higher on the passenger side.”
The bill, which would take effect Jan. 1, has drawn the support of several Democratic presidential candidates, including U.S. Sens. Bernie Sanders and Elizabeth Warren.
The bill has been pushed by the state’s most powerful unions, including the Service Employees International Union and the Teamsters. Uber and Lyft initially tried to engage with those organizations to carve out exemptions for themselves by offering things such as wage guarantees, funds for benefits and some ability to bargain with the companies.
But with the unions confident that the bill could pass in its original form, the talks fizzled over the summer, people with knowledge of the discussions said.
Since then, the companies have gone directly to lawmakers in Sacramento, shuffling between legislators’ offices and those of the governor over the past few weeks. Top executives making the case have included John Zimmer, Lyft’s president, and Tony West, Uber’s general counsel and the brother-in-law of California Sen. Kamala Harris, who is seeking the Democratic presidential nomination.
Last month, Lyft and Uber made public their proposals to address labor’s concerns without passing the law in its current form. Together with food delivery company DoorDash Inc., they also threatened that if the bill became law in its current form, they would spend $90 million on a ballot measure next year to try to exempt themselves.
Aides to Mr. Newsom helped facilitate talks between the companies, unions and lawmakers, but on Labor Day, four days after the ballot-measure threat, he announced for the first time that he would sign the bill if it passed.
With prospects dim for a last-minute deal, Uber and Lyft are also pushing lawmakers to consider new legislation in their next session, which begins in January. The companies have been proposing a series of financial concessions and a way to give unions a way to represent drivers in negotiations even if the workers aren’t classified as full-time employees.
“Labor leaders have a historic opportunity to dramatically improve the quality and security of independent work,” an Uber spokesman said.
Some gig-economy executives have also indicated they may challenge the bill in court if it becomes law.
On Monday, Uber and Lyft drivers in favor of the bill for ride-hailing companies filled the rotunda of the California capitol and chanted in support of the bill and a union.
“These two companies have been in business for many years, and they named us independent contractors but there is nothing about us that means being independent,” said Linda Valdivia , an Uber driver from the Los Angeles suburb or Bell Gardens who said she has had to increase the number of hours she drives to keep making the same income.