California plays by its own rules

California's embrace of new rules covering gig-economy employers like Uber and Lyft is only the latest example of the state's willingness to regulate business faster and farther than the federal government.

Why it matters: California is the most populous and richest state and home to 3 of the 5 biggest U.S. tech companies, so its laws often become models for other states' rules — and even de facto national standards.

Driving the news: The California legislature's passage this week of AB5, a bill that makes it tougher for companies to classify employees as contractors, sets the stage for a drawn-out legal battle between the ride-hailing companies and the state government.

• While individual drivers and labor groups will take the companies to court to force them to reclassify contractors as employees, the companies will promote a 2020 ballot measure to undo the law.
• The spotlight is on Uber and Lyft, but contractors are common in every corner of the tech industry, and the new rules could have broader impact. According to one count by an employee group, Google has more than 120,000 contractors, making up more than half of its work force.

Before the state tackled the contractor issue, California had already taken on privacy.

• It passed the wide-ranging California Consumer Privacy Act (CCPA) in 2018. The law kicks in on January 1, 2020.
• Concern over the California law's tough requirements fueled business support of efforts to pass a new national privacy law in the current Congress, which would pre-empt state rules.
• Business leaders hoped they'd get a less restrictive privacy regime from Congress than from California, and as recently as this week, more than 50 CEOs sent a letter to key senators urging them to move on a national measure.
• But every month that passes makes it less likely that Congress will act — and more likely that companies that do business in California, which effectively means nearly all big companies, will have to comply with the state's new requirements.

The big picture: California's role as the U.S.'s fallback regulator goes beyond tech.

• As the Trump administration has pushed to roll back the Obama administration's tough carbon-emissions rules for the auto industry, climate-conscious California has stepped in.
• Last month the state's environmental authorities cut a deal with 4 automakers — Ford, BMW, Honda and VW — to voluntarily keep tightening emissions standards through the mid-2020s, albeit slightly less aggressively than Obama's mandates required. Other automakers are reportedly weighing whether to join the group.
• The Justice Department is reportedly pursuing an inquiry into whether the manufacturers' move represents anticompetitive collusion, while the Environmental Protection Agency and the Transportation Department are threatening legal action against California regulators. The president has complained on Twitter.

Yes, but: In one recent high profile case of states going after a business, California hung back while others took the lead.

• It was one of only two states not to join a new antitrust investigation into Google's practices that dozens of state attorneys general announced this week. (Alabama was the other.)