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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.

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