Why a California law could impact the future of the gig economy

Business executives and policymakers across the country are closely watching California, which has long taken the lead in establishing regulations that affect the technology, energy, automotive and housing sectors. The state with the largest economy is about to set the pace again with legislation that could reclassify hundreds of thousands of gig economy workers as employees.

Uber or Lyft driver in traffic with a passenger in the backseat, view from backseat out the windshield

Assembly Bill 5 (AB5) passed the state House and Senate earlier this month, and is now on the desk of Gov. Gavin Newsom, who has indicated he will sign it. Under the law, which takes effect January 1, a number of firms—including rideshare, trucking, publishing and cleaning companies—would be required to recognize independent contractors as employees who are entitled to minimum wage and benefits such as sick time and health insurance. The measure is widely known as “the Uber law,” referring to the popular ridesharing platform that has made headlines for its refusal to consider drivers as employees. But Uber, which has maintained that it is exempt from the regulation, isn’t the only business that could be forced to change under AB5. An army of 1.5 million freelance workers in the state could also be converted to employees by the new law.

The Knowledge@Wharton radio show invited three professors to discuss the law’s passage and what it means beyond the borders of California. Wharton management professors Matthew Bidwell and Lindsey Cameron joined Veena Dubal, law professor at the University of California at Hastings, where Bidwell poses the question, “If your entire business model relies on paying people below statutory minimums, is that really a business model we want to be supporting?”

Read more at Knowledge@Wharton.