The recent raft of layoffs in the U.S. technology sector has brought renewed attention to the federal WARN Act. Passed in 1998, the legislation required employers with more than 100 workers to provide those employees with at least 60 days’ notice when a business will be closed or mass layoffs are planned. The Worker Adjustment and Retraining Notification (WARN) Act is still regarded as the golden rule in Silicon Valley for such situations.

But there’s a significant caveat that comes with the legislation: The WARN Act doesn’t cover contractors. That’s a significant provision given the number of independent contractors working today – not just in Silicon Valley, but across the country. In light of the recent handling of layoffs at Twitter and certain other companies, California has proposed the Protect Laid-Off Workers Act – legislation that would not only build in new layers of worker protections but also extend to contractors. Here’s what it means to those involved:

How the Protect Laid-Off Workers Act Affects Contractors

Under California’s proposal, the Protect Laid-Off Workers Act includes several significant differences that essentially beef up the federal WARN Act:

• All employers laying off more than 50 workers at a time must give employees 90 days’ notice
• Employers would be prohibited from pressuring workers to sign waivers, nondisclosure agreements or non-disparagement agreements in exchange for severance pay
• Employers in violation of the Protect Laid-Off Workers Act would be liable for civil penalties in addition to back pay
• Contractors would be covered the same as permanent employees under California’s proposal

The Protect Laid-Off Workers Act is a well-intentioned reaction to recent events that will add safeguards that should be welcomed by anyone who values worker rights and, specifically, the contributions of the contractor community. The legislation attempts to correct a loophole in the WARN Act that couldn’t have been anticipated 25 years ago, before the flourishing of the contingent labor market. For contractors, the proposal would help reduce or prevent unexpected gaps between gigs while keeping employers from strong-arming cut employees into giving up their rights.

How the Protect Laid-Off Workers Act Affects Employers

As deserving as independent contractors are of the protections tied to California’s proposal, the legislation would dramatically alter the contingent labor economy – and in a way that could not only handcuff employers but also bring unintended harm to workers.

A company that employs dozens of contractors across multiple departments may be reluctant to spearhead new initiatives under the Protect Laid-Off Workers Act, which would add layers of complexity and risk to building timelines around the contract terms of contingent laborers. A notice requirement of 60-90 days under the new legislation would eliminate much of the flexibility from 3- and 6-month contracts, for instance. The effect could stifle innovation and even discourage the use of contractors, which no one wants.

Similar legislation doesn’t end at California’s borders. In New Jersey, the Millville Dallas Airmotive Plant Job Loss Notification Act (better known as the NJ WARN Act) takes effect in April, and other states may soon follow suit with their own versions. In the days ahead, state lawmakers will need to take special care to strike a balance that protects contractors while ensuring the continued health of the contingent labor market.

For more insights on the labor market, check out the PeopleCaddie blog.