Now pending in the California Senate is state Assembly Bill 5. The Bill was passed by the Assembly at the end of May 2019. AB 5, if passed by the Senate and signed into law by the Governor, will make it difficult for companies to hire workers as
independent contractors instead of employees. These workers will be afforded the same labor protections and benefits as employees including unemployment insurance, health care subsidies, paid parental leave, overtime pay, workers’ compensation, and a guaranteed minimum hourly wage.
AB5 expands on the California Supreme Court’s decision last year known as Dynamex. The ruling and the bill require businesses to use the so-called “ABC test” to figure out whether a worker is an employee. To hire an independent contractor, businesses must prove that the worker (a) is free from the company’s control, (b) is doing work that isn’t central to the company’s business, and (c) has an independent business in that industry. If the worker does not meet all three of these
conditions, then the worker must be classified as an employee.
California businesses are panicking over the possible passage of AB5. Many businesses and organizations are lobbying for exemptions. Among the professions to be excluded from the ABC Test, as AB5 is presently drafted, include doctors, dentists, lawyers, architects, insurance agents, accountants, engineers, financial advisers, real estate agents, and hairstylists who rent booths at salons.
If AB 5 becomes law gig workers would, for the first time, have a safety net. The state of California would also benefit. The State estimates that it loses $7 billion in tax revenue each year from companies that misclassify employees.
In light of the Dynamex and this proposed legislation, Employers should consult with their business attorneys to avoid misclassification of their workers and engage in legal planning as to the structure of the business to explore whether they can avoid turning their present “independent contractors” into employees.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
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