California passed landmark legislation that could have major repercussions on the gig economy and participating companies.

It’s a term that refers to a workforce environment made up of short-term engagements, temporary contracts and independent contracting. It’s also been referred to as a “freelancer economy,” “independent workforce,” and “sharing economy.”


How does it work?

Workers operate as independent contractors taking on several small gigs (small assignment, task or job) that, pooled together, are equal to or near to full-time employment. Many companies such as Lyft, Uber, Instacart, TaskRabbit and more have built their app-based businesses to rely on independent workers.

The gig economy isn’t necessarily a bad thing, it’s the result of the way our society operates today. In general, it boosts the economy at large making it possible to deliver goods and services quicker and more efficiently.


California legislation changes

California Senate passed a bill, 29 to 11, that applies to app-based companies. The legislation will go into effect January 1, 2020, and will require gig workers to be classified as employees rather than contractors.

Changing how workers are classified-from contractors to employees-would then allow for more worker protections like minimum wage and unemployment.

Industry officials estimate changing from freelancers to employees would raise costs by 20-30%. Gig-type companies such as Uber and Lyft have been against such legislation stating they would have to begin scheduling employees which would go against what many of their drivers see as the biggest perk – their total flexibility.

Other states have similar legislation in the works. Significant nationwide changes to the gig economy could be ahead.  

These gig economy companies, disruptors to the market, could be facing serious challenges.

Read more about it here.