Uberheadquarters, located at 1455 Market street in San Francisco,California. Photo: Jason Doiy/ALM

Gov. Gavin Newsom on Wednesday signed landmark worker classification legislation thatwill make it more difficult for companies to label workers asindependent contractors.

In a signing message, Newsom saidthat while Assembly Bill 5 is "an important step," he will continuenegotiating with gig companies over a potential compromise thatwould give their workers benefits and organizing power withoutclassifying them as employees.

"A next step is creating pathways for more workers to form aunion, collectively bargain to earn more and have a stronger voiceat work—all while preserving flexibility and innovation," Newsomwrote.

"In this spirit, I will convene leaders from the Legislature,the labor movement and the business community to support innovationand a more inclusive economy by stepping in where the federalgovernment has fallen short and granting workers excluded from theNational Labor Relations Act the right to organize and collectivelybargain," the governor added.

The legislation largely codifies the California Supreme Court's2018 ruling in DynamexOperations West v. Superior Court, which created a more workerfriendly, three-pronged test for determining an employee'sclassification. That decision, along with Newsom's prior commitmentto signing AB 5, has already spurred litigation targeting on-demandcompanies.

Boston-based attorney Shannon Liss-Riordan sued Uber last week, citing thethen-pending AB 5 and the Dynamex ruling in challenging theride-hailing company's practice of classifying its drivers asindependent contractors. Uber has yet to respond Liss-Riordan'smotion for a preliminaryinjunction, filed in the U.S. District Court for the NorthernDistrict of California.

Uber's chief legal officer, Tony West, said last week that the companybelieves its workers can still qualify as independent contractorsunder the Dynamex ruling and AB 5. The company had no immediateplans to reclassify drivers and is considering its legal andpolitical options, he said.

San Diego City Attorney Mara Elliott last week also sued Instacart, alleging theSan Francisco-based grocery delivery service misclassifies itsworkers based on the Dynamex test.

Meanwhile, the delivery company Postmates recently announced itwould start providing accident insurance benefits to its drivers,Fisher & Phillips partner Jeffrey Smith said in a blog post the firm hosts about laborand employment issues affecting the gig economy.

"Some businesses have been hesitant to offer a full suite oftypical workplace benefits to their gig workforce for fear it couldlead to a misclassification finding," Smith wrote. He added: "Butby providing this initial step of benefits, Postmates is hoping notto break that wall but instead make itself even more attractive toa pool of qualified and skilled workers."

Uber, Lyft and Doordash have threatened to finance a $90 millionballot initiative in 2020 that would undercut AB 5 if they cannotreach a compromise with state leaders that would keep their workersindependent contractors.

AB 5 gives city attorneys in California's biggest municipalitiesthe authority to seek injunctions against employers, an enforcementmechanism added by author Assemblywoman Lorena Gonzalez, D-SanDiego, in an attempt to thwart arbitration agreements required bymany gig employers.

The worker-classification law exempts numerous professions,including attorneys, doctors and even newspaper delivery workers,from the Dynamex test. In related litigation, the U.S. Court ofAppeals for the Ninth Circuit has asked the California SupremeCourt to consider whether the new labor laws should be appliedretroactively.

"The fact that the Legislature recognized in AB 5—and in relatedlegislation—that so many professions and industries include workerswho are not appropriately classified as employees is strongevidence that the Dynamex decision should not apply to everyone andthere are many industries that still need to be added," theCalifornia Chamber of Commerce said in a statement.

"Simply put, much work remains to be done on the Dynamex issue,"the statement continued. "As such, the business community will beaggressively pursuing further exemptions next year.

California's worker classification debate has been closelywatched by leaders in other states, including New York, where Gov.Andrew Cuomo said last week that "morepeople should be classified as employees … I don't want to lagCalifornia in anything."

Read more: 

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• Gig work, data privacy and other workplace trendsto watch
• NLRB adopts business-friendly independentcontractor test