California AB5 Law
What You Need to Know About the New AB5 Law
In September 2019, California Governor Gavin Newsom signed into law the AB5 bill. This “gig worker bill” could potentially reclassify millions of workers in California who are independent contractors and make them employees instead. The legislation is far-reaching and affects more companies than simply Uber and Lyft; it affects and impacts a substantial number of California companies using independent contractors. While many employers are in a bit of a state of panic, the following is a brief guide to help you understand this new law.
In order to reclassify an independent contractor as an employee, California’s Supreme Court developed a three-pronged test, called the “ABC Test” in the Dynamex case. This test will presume that a person is an employee, not an independent contractor unless these criteria are met:
- The worker is free from control and direction in the performance of their services; and
- The worker is performing work outside the usual course of the business of the hiring company; and
- The worker is customarily engaged in an independently established trade, occupation, or business.
It is important to note that all three of these prongs of this test must be met to establish a worker as an independent contractor and not an employee. Ultimately, this law expands the decision made in the Dynamex case to any person working under the California State Labor and Unemployment Insurance codes.
Why AB5 is So Important
AB5 is significant because it would require many employers to completely reclassify many of their workers as employees instead of independent contractors. This means that they would be entitled legally to benefits such as minimum wage, expense reimbursement, family leave under the FMLA, paid sick leave, unemployment insurance, and workers’ compensation. Employers are required under the law to pay for half of the social security taxes of employees, as well. These benefits could cause many employers to go out of business as their costs could rise astronomically.
Many California companies may be exempt from this new law, and most are furiously researching to determine if they can avoid dealing with these burdensome new classifications for their workers. The bad news is that a company must meet 12 specific requirements (and some referral agencies need to meet 10 specific requirements) in order to be exempt from AB5. The requirements are strict and frankly, difficult to satisfy. However, many lobbyists worked hard and as a result, there are over 50 types of businesses that are exempt from this law. Some of the businesses excluded from AB5 include doctors, dentists, lawyers, accountants, marketing professionals, hair stylists, payment processing agents, stockbrokers, travel agents, graphic designers, veterinarians, aestheticians, insurance agents, real estate agents, engineers, commercial fisherman, grant writers, fine artists, and human resource administrators. Additionally, if a freelancer makes fewer than 35 submissions a year to a company, then he or she may be exempt and classified as an independent contractor. However, 35 submissions a year is unrealistically low, and many freelancers will lose their entire income if they work steadily for a company on a regular basis.
What can a Business in California do Now?
If you currently hire independent contractors, your best course of action is to visit with an experienced employment attorney. While the new AB5 legislation is new, you should make a proactive effort with regard to the classification of any of your independent contractors as soon as possible. Contact the Law Office of Kris Mukherji at (858) 442-5747. We can help ensure that you have all of your questions answered, and help you with your next steps.