The California Senate passed a bill on Tuesday that would give companies strict guidelines for whether a worker is considered an independent contractor or an employee, subject to employment rights such as workers compensation and wage regulations.

A.B 5 passed the state Senate by a vote of 29-11, previously passed the Assembly by a 59-15 vote on May 29 and now heads back to the Assembly for a vote on amendments, according to the state’s legislature website.

The bill codifies a controversial California Supreme Court decision on the definition of an independent contractor. Specifically, the bill was drawn from the 2018 decision in Dynamex Operations West Inc. v. Superior Court of Los Angeles County in which two individual delivery drivers sued a delivery company Dynamex Operations West Inc., claiming that the company had misclassified its delivery drivers as independent contractors rather than employees, thus violating California wage and worker laws, according to documents. The state Supreme Court unanimously sided with the drivers’ stance on their status, creating a legal precedent for workers that may be classified as independent but are not, per the ruling. 

A.B. 5, introduced May 24, presumes a worker is an employee unless an employer satisfies a three-factor test, and would affect those working in the gig economy, according to a legislative analysis released with the bill.

The test — known among legal experts as the “ABC test” — is summarized in the latest draft of the bill: “(A) person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that the person is free from the control and direction of the hiring entity in connection with the performance of the work, the person performs work that is outside the usual course of the hiring entity’s business, and the person is customarily engaged in an independently established trade, occupation or business.”

The bill exempts from the test “licensed insurance agents, certain licensed health care professionals, registered securities broker-dealers or investment advisers, direct sales salespersons, real estate licensees, commercial fishermen, workers providing licensed barber or cosmetology services, and others performing work under a contract for professional services, with another business entity, or pursuant to a subcontract in the construction industry.”

San Francisco-based rideshare companies Uber Technologies Inc. and Lyft Inc. and San Francisco-based meal delivery firm DoorDash Inc. late last month announced they are pledging a combined $90 million to introduce a ballot initiative to establish a new classification for drivers. 

A Lyft spokesman wrote in an e-mailed statement Wednesday that the “political leadership missed an important opportunity to support the overwhelming majority of rideshare drivers who want a thoughtful solution that balances flexibility with an earnings standard and benefits.”

The Lyft spokesman also alluded to the exempt industries: “The fact that there were more than 50 industries carved out of A.B. 5 is very telling.”

A DoorDash spokeswoman also released a statement, saying the company is “committed to passing a new law… that would create benefits and protections for Dashers, including a guaranteed minimum wage with the opportunity to earn more, access to benefits, and protections against discrimination and sexual harassment.”

“We will continue working until we achieve this solution for the hundreds of thousands of Californians who turn to DoorDash to earn supplemental income and the tens of thousands of restaurants and small businesses throughout the state who are able to grow their businesses through our platform,” the spokeswoman wrote in an e-mail.

An Uber spokesman told reporters Wednesday that it intends to find a compromise with California lawmakers and that its drivers value the independence.  

We “will continue to respond to claims of misclassification in arbitration and in court as necessary, just as we do now. But we will also continue to advocate for the independence and choice that drivers tell us again and again in surveys, polls, focus groups, and personal conversations that they value most,” he told reporters, according to a transcript.