New California Law Affecting Independent Contractors
On September 18, 2019, California Governor Gavin Newsom signed a new bill into law that may have a significant impact on the state`s workforce. The law, known as Assembly Bill 5 (AB5), affects the classification of independent contractors and requires many businesses to reclassify them as employees.
This new law aims to protect workers in the gig economy, such as Uber and Lyft drivers, who have been classified as independent contractors. These workers have been excluded from many employment protections, such as minimum wage and overtime pay, unemployment insurance, and workers` compensation benefits.
AB5 creates a new labor law test, known as the “ABC test,” which companies must use to determine if a worker should be classified as an independent contractor or employee. Under this test, a worker is presumed to be an employee unless the employer can prove all three of the following:
A) The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
B) The worker performs work that is outside the usual course of the hiring entity`s business.
C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
If a worker fails to meet any one of these three criteria, they must be classified as an employee. This means that businesses must provide employees with minimum wage and overtime pay, workers` compensation insurance, unemployment insurance, and other employment benefits.
The ABC test will apply to many different industries, including rideshare companies, trucking and delivery services, janitorial services, and even freelance writers and photographers. However, there are some exceptions to the law, including licensed insurance agents, physicians, attorneys, and professionals who provide certain types of services under contract.
AB5 is not without controversy, as many businesses and workers may be negatively affected by the new law. Some industries, such as ride-sharing companies, have already threatened legal action to challenge the law. Others worry that the law will lead to a decrease in job opportunities and flexibility for workers who prefer to work as independent contractors.
Whatever the outcome, AB5 is a significant development in labor law and could have far-reaching effects on the gig economy and independent contracting in California. Companies and workers will need to carefully evaluate their employment relationships to ensure compliance with the new law.