California Gig Worker Misclassification Back in Spotlight With New Legislation

by Rrita Osmani and Samuel Indermaur

What does the new legislation propose, and how does it affect California gig worker misclassification debates under AB5 and Prop 22?

California’s Assembly Bill (AB) 1340 and Senate Bill (SB) 371 together are a monumental legislative package that strengthens the labor protections of gig workers. The bills operate within the framework established by Proposition 22, which, passed in 2020, classifies rideshare drivers as independent contractors. This designation precludes them from protections granted to employees, most notably, the right to organize. Supported by both labor unions and rideshare companies, the new legislation aims to grant drivers new protections while largely preserving their independent contractor status. Specifically, AB 1340 allows drivers for companies like Uber and Lyft to unionize and collectively bargain over pay and working conditions. This expanded right goes beyond the limited benefits guaranteed under Proposition 22 and was made possible by a 2022 appellate court ruling that invalidated a prohibitive collective bargaining clause in Proposition 22. The companion bill, SB 371, is a concession to rideshare companies, reducing their required uninsured and underinsured motorist insurance coverage. This package represents a new phase in the debate by moving away from the rigid “employee vs. independent contractor” showdown that defined AB 5 and Proposition 22 and instead creates a hybrid status within the independent contractor framework that can secure gig workers state protections.

How might the legislation redefine who is treated as an employee versus an independent contractor?

AB 1340 wouldn’t convert app-based drivers into “employees” under California’s applicable legal standard test known as the “ABC” test. Instead, it layers collective-bargaining rights on top of drivers’ existing independent-contractor status preserved by Proposition 22. The bill sketches a sector-wide process—elections to certify driver organizations, a duty for platforms like Uber and Lyft to bargain in good faith, and mediation/arbitration backstops—with enforcement running through California’s Public Employment Relations Board (“PERB”).  Practically, this legislation creates a hybrid status for employees: contractor status plus union rights, without changing the underlying legal test for employee classification.

SB 371 is the paired compromise that adjusts insurance rules for transportation network companies, addressing a high cost for the platforms. The bill also avoids worker classification in its entirety. Taken together, the two bills, in conjunction with the ABC test that presumes employee status and Proposition 22 that defines gig workers as contractors, cement labor protections for gig workers while satisfying the needs of ride-share platforms.

What legal and financial risks do gig companies face if misclassification is proven?

If a court or agency finds that a platform misclassified workers in California, standard exposure has 5 central components: (1) Companies can be ordered to make workers whole for unpaid minimum wage and overtime, plus premium pay for missed rest breaks; (2) “waiting-time” penalties for late final pay (up to 30 days); (3) wage-statement penalties (up to $4,000 per employee, plus fees) under Labor Code § 226(e); (4) mandatory reimbursement of necessary business expenses under § 2802; (5) Employment Development Department payroll-tax assessments with interest or penalties.

How does misclassification impact wages, benefits, and workplace protections for gig workers?

Misclassification negatively impacts gig workers by denying them access to fundamental wages, benefits, and workplace protections. In terms of earnings, misclassified independent contractors typically receive lower overall pay, are not entitled to minimum wage or overtime guarantees, and must bear the full financial burden of business-related expenses like fuel and maintenance. Their tax liability is also higher, as they are responsible for both the employer and employee portions of Social Security and Medicare taxes. Misclassification also strips gig workers of access to crucial social safety nets and employer-sponsored programs, as they are ineligible for health insurance, retirement plans, unemployment insurance, and workers’ compensation. This leaves them financially exposed in the event of injury, illness, or job loss. Finally, misclassification can undermine workplace protections by denying workers the right to collectively bargain, although AB 1340 specifically aims to address this issue.

How Can Miller Shah Help If You’ve Been Misclassified?

As uncertainty surrounding the precarity of labor rights grows, it is important for both employees and independent contractors to learn what rights they are entitled to. Miller Shah LLP has been monitoring employee misclassification and litigating cases related to this topic for years. If you believe you’ve been improperly classified at work, please contact us.