CA Assembly Bill 5 – Employee or Independent Contractor?

CA Assembly Bill (AB) 5 – What is it?
Sometimes referred to as the “gig economy” or “independent contractor law,” California’s AB 5 was signed into law in 2018 and took effect on January 1, 2020. It puts into law the California Supreme Court case Dynamex Operations West, Inc. v. Superior Court which states that most workers are considered employees and should be classified as employees unless the employer can prove that the worker is an independent contractor.

What is an employee?
Generally, an employee is someone who is under the direction and control of an employer, and who is entitled to minimum wage pay, sick leave, unemployment insurance, workers’ compensation, and other benefits.

What is an independent contractor?
Generally, independent contractors are individuals who have their own businesses and are hired by a company or organization to provide a certain, specific task or set of tasks that are not a part of the company’s or organization’s normal course of business. Independent contractors generally have more than one client and are not under the direction or control of any one company or organization. Although paid for their services, independent contractors do not receive the same pay and other benefits as employees.

The ABC Test – Determining if Someone is an Employee or Independent Contractor

If an employer wants to classify a worker as an independent contractor as opposed to an employee, AB5 requires that each of the following three conditions is met:

A. The worker is free from the control and direction of the employer or hiring entity. This means that the worker decides when and how to accomplish the job they are expected to perform.

B. The worker performs work that is outside the usual course of the employer’s or hiring entity’s business.
Example: For instance, a retail store can hire a plumber or electrician to do work as an independent contractor. But when a bakery hires a cake decorator, the work being performed is part of the company’s usual business and thus the worker may be considered an employee.
C. The worker does this work for other customers and not just for the one employer or hiring entity. For example, workers should be able to show they offer the same or similar services to other customers or potential customers and should promote themselves in such a way.

Sample Industries Impacted
This issue arises in many industries, but especially in ones that are sometimes called the “gig economy” in which individuals are performing in less traditional roles that are not in an office setting working a 9 to 5 schedule. Many of these workers have some ability to set their own schedules and to work for multiple companies simultaneously, such as Lyft and Uber drivers.

Some industries are exempt from the requirements of AB5, such as doctors, dentists, psychologists, insurance agents, stockbrokers, lawyers, accountants, engineers, and real estate agents.

Current Status
AB5 took effect on January 1, 2020. However, Uber, Lyft and other “on-demand” companies have joined together to pursue a ballot measure to try having the law overturned in the 2020 California elections. In the meantime, employers are expected to comply with the law.

Additionally, certain industries have filed lawsuits challenging AB5, such as truckers and freelance journalists and photographers.

The final extent and impact of AB5 are yet to be seen. Stay tuned for new developments!

By Angela Reddock-Wright, Esq., Employment Law Mediator, Arbitrator & Workplace Investigator. This post is the second in a series on new California employment laws that are going into effect in 2020.

DISCLAIMER: Nothing in this blog, written materials or otherwise is intended as legal advice by the Reddock Law Group, Managing Partner Angela Reddock-Wright or any person associated with the firm. This blog is intended for educational purposes only. The Reddock Law Group does not represent clients in legal matters. We are a full-service mediation, neutral, investigations and alternative dispute resolution firm. For legal advice, please contact a licensed attorney with experience in employment law.