The California State Senate voted on Tuesday to pass a bill that would make it much more difficult for companies like Uber Technologies Inc and Lyft Inc to classify workers as independent contractors rather than employees.
The bill, known as Assembly Bill 5, or AB5, has garnered national attention, largely owing to the size of California's workforce. Several Democratic presidential candidates have supported the measure, including United States Senators Elizabeth Warren of Massachusetts, Bernie Sanders of Vermont and Kamala Harris of California.
It has also come under sharp criticism by trade groups and so-called "gig economy" firms that rely heavily on contractors.
"We are fully prepared to take this issue to the voters of California to preserve the freedom and access drivers and riders want and need," ride-hailing firm Lyft said in a statement.
Lyft's rival, Uber, did not immediately respond to a request by the Reuters news agency for comment after US market hours.
Gig economy companies, whose business models are dependent on the use of contractors, have been among the most vocal critics of AB5.
Last week, Uber and Lyft proposed a ballot referendum that could be presented to California voters next year and would exempt drivers who work for ride-hailing services from the scope of the bill.
Uber, Lyft and delivery firm DoorDash, which has also made freelance drivers the backbone of its business, earmarked $90m for a planned November 2020 ballot initiative that would exempt them from the law.
San Francisco–based DoorDash, expressing its disappointment at the vote, said it was committed to a new law that would guarantee benefits and protections, including a minimum wage, for its delivery drivers.
AB5, which was sponsored by California Assemblywoman Lorena Gonzalez and is supported by California Governor Gavin Newsom, passed the state senate with 29 votes in favour and 11 votes against it.
"By approving AB5, the California legislature solidified our state's position as the national leader on workplace rights, setting the standard for the rest of the country to follow," the California Labor Federation said in a statement.
The bill goes back to the Assembly for a final vote, known as a "concurrence vote" and then it moves on to Governor Newsom, according to a staffer for Gonzales.
California is the nation's most populous state and it is a leader in establishing policies that are adopted by other states.
"People ought to be very concerned because what happens here does tend to get copied in other states," said Joseph Rajkovacz, director of governmental affairs for the Western States Trucking Association, citing California's leadership in setting stricter vehicle pollution standards.
The bill would codify a 2018 California Supreme Court decision, Dynamex Operations West Inc versus Superior Court, that set out a new standard for determining whether workers are properly classified as independent contractors.
The court said workers are a company's employees under state wage laws when the company exercises control over their work, or they are integral to its business.