The costs for app-based businesses, many of which are not profitable, could be significant. Uber held a troubled initial public offering in May and has reported large losses and slowing revenue growth. Dara Khosrowshahi, Uber’s chief executive, has laid off hundreds of employees in recent months, including Tuesday, to cut costs.
But some traditional businesses have argued that the mandate merely levels the playing field. Construction companies have long complained that they face unfair competition from rivals that classify workers as contractors so they can avoid paying payroll taxes and lowball bids on projects.
App-based companies are “starting to send carpenters, electricians, plumbers off their platform — independent contractors who make very low wages,” said Robbie Hunter, the head of the state building trades council that represents construction worker unions in California. “They’re undercutting brick-and-mortar businesses doing the right thing — paying for workers’ compensation, being very efficient, working hard to make a profit.”
In other cases, the new law has created anxiety and confusion.
Small vineyard owners are concerned that they could be forced to directly employ the independent truckers they use to haul their harvests and become responsible for providing insurance and workers’ compensation. Currently, truckers operate as contractors, with their own rigs and insurance, and serve several vineyards, said Michael Miiller, director of government relations at the California Association of Winegrape Growers.
“Our members are growers, not trucking companies,” Mr. Miiller said. “The target of legislators is Uber and Lyft, but the unintended victims are small, independent vineyards on the coast of California.”
Saunda Kitchen owns a Mr. Rooter plumbing business in Sonoma County that has 30 employees, for whom she pays payroll taxes and provides the various mandated benefits. But Ms. Kitchen said she believed that she herself would have to become an employee of Mr. Rooter under the new law, which could cause the parent company to pull out of the state.
“I wouldn’t have access to new technology, training, help with marketing,” said Ms. Kitchen, who planned to talk with Mr. Rooter officials on Thursday about how to proceed.