Under the bill, three conditions must be met for an individual to be considered an independent contractor. Those conditions are:

1.The person is free from control and direction of the hiring organization in connection with the performance of the work, both under the contract for the performance of the work and the work in fact.

2.The person performs work outside the usual course of the hiring company's business.

3.The person is customarily engaged in an independently established trade, occupation or business of the same nature as that in the work to be performed for the organization.

Number 3 is important in that the person must be generally engaged in a particular trade or occupation of the same nature. Being able to drive a private passenger vehicle is a common activity, and while there are professional drivers, they are different than people with jobs as waiters, bookkeepers, accountants or others looking to make a little money on the side. If the person is a taxi driver by day that could become an issue; however if the person is a vet tech by day, and wants to earn some extra cash by driving for a TNC in her off hours, that does not make her an independent contractor as her full time occupation is not related to driving for the TNC.

Certain occupations fall into a different category and the Dynamex case does not apply; those occupations are governed by an earlier unrelated case, S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 (Borello).

The bill includes a long list of exempt occupations; many of the exempt occupations are those requiring certain licenses. Those licensed by the Department of Insurance under certain sections of the insurance code, physicians, surgeons, dentists, psychologists, or veterinarians licensed by the State of California, actively practicing licensed lawyers, architects, engineers, private investigators or accountants; securities broker-dealers, investment advisers or their agents or representatives, if registered by the Securities' and Exchange Commission or Financial Industry Regulatory Authority; direct sales salespersons, and commercial fisherman working on American vessels as defined.

Others exempt from the Dynamex decision are those providing certain professional services in the individual has a location separate from the hiring entity, the person has a business license along with any other required license to practice the profession, the person can set or negotiate his own rates, set his own hours, engage in the same type of work under another entity for the same type of work, and is responsible for exercising discretion and independent judgement in the performance of the work.

Professional services is defined in the bill as marketing, if the work is original and on a contracted basis, administrator of human relations on a contracted basis, travel agents under certain sections of the code, graphic designers, grant writers, fine artists, IRS agents under certain sections of the code, payment processing agents through an independent organization; photographers/photojournalists, freelance writers, editors, cartoonists if content not submitted more than 35 times a year; esthetician, electrologist, manicurist, and barbers. To be exempt cosmologists must set their own rates, hours, process payments themselves, maintain business license, and have their own book of business.

Real estate licensees, repossession agencies, certain business-to-business services under certain conditions, subcontractors under certain conditions, service providers, referral agencies, animal services such as pet boarding, tutors, and others.

The bill defines an employee as every person in the service under any appointment or contract of hire or apprenticeship, express or implied, written or oral, whether lawfully or unlawfully employed and includes aliens, minors, elected and appointed paid public officers, officers and members of boards of directors of quasi-public or private corporations while rendering service for the corporations with pay. Included are domestic workers, incarcerated persons performing certain work, working members of a partnership or LLC receiving wages, person with power to revoke a trust, person committed to state hospital and performing vocational rehabilitation work.

The Unemployment Insurance Code is also amended by this bill and discusses how to determine if a specific employee falls under the employee or contractor category. Again, ability to negotiate rates, determine assignments of others, hire and terminate workers, and other roles. The text of the bill with full details can be found here: https://legiscan.com/CA/text/AB5/id/2051980

Meanwhile, Uber, Lyft, and Doordash are pushing for an alternative to the bill and have stated that they will spend $90 million on a 2020 ballot initiative on gig work that would address certain features of the bill that they do not agree with. They note that over fifty industries received exemptions in the bill.

One of the significant problems this bill presents to the TNCs and others is profitability. Uber has lost more money faster than any venture in history; it has not been profitable to date, and having to increase wages, pay benefits, taxes, workers compensation insurance and everything else that goes along with having employees instead of contractors will severely affect their cash flow. Other TNCs have the same issue; none is profitable, and the increased expense of turning the drivers into employees creates a tremendous hardship on an already financially fragile industry.

While designed to address ride-sharing, the bill applies to all employers in California, so other industries will have to review their staff to determine if they are categorized and paid appropriately. At least one million workers are likely to be affected by the bill, including janitors, nail salon workers, and construction workers. The effects are wide reaching; the New York Times reports that small churches and synagogues are concerned that they cannot afford to make pastors and rabbis employees, and winemakers and other franchise owners expressed similar fears. Some drivers for the TNCs have expressed concern that their hours will be limited or that they will be cut off completely. New York put a minimum wage in place for gig drivers this year and in response, Lyft put restrictions on the number of drivers on the road. Having too many drivers on the road without passengers, with the drivers collecting wages just to be available, would have significantly raised the minimum wage the company had to pay.

While California is the first state with such a law, Oregon and Washington already have similar bills drafted, and New York has taken similar actions. Other states are sure to follow. Already a case has been filed in California by an Uber driver for their misclassifying drivers as contractors, and for their stated intent to defy the legislation and continue to classify drivers as contractors. As the governor has not signed the bill yet and it does not go into effect until January, it will be interesting to watch. Other suits are sure to follow.