Cameron Miranda
California Assembly Bill 5 (AB5), also known as the 'gig-worker law', came into effect on January 1, 2020, and permanently altered how workers are classified in the state. The bill aims to address the misclassification of workers as independent contractors instead of employees, thereby boosting their benefits under the law. The bill has been challenged and modified since it was signed into law, with a number of job categories being exempted. This paragraph provides an overview of the topic, and further questions can be addressed regarding the specific implications of AB5 on workers' rights and business operations in California.
| Characteristics | Values |
|---|---|
| Name | California Assembly Bill 5 (AB5) |
| Nickname | "gig-worker law" |
| Effective date | January 1, 2020 |
| Purpose | Redefine the employment status of workers to include many workers that were previously categorized as "independent contractors" as employees |
| Scope | Companies that hire independent contractors in California |
| Exemptions | Lawyers, doctors, dentists, hair stylists, accountants, insurance agents, engineers, real estate agents, financial advisors, some healthcare workers, freelance writers, translators, landscape architects, insurance inspectors, app-based drivers |
| Retroactivity | Still being litigated |
| Tests | ABC Test, Borello Test |
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What You'll Learn
AB5 and the ABC test
The ABC test is a three-part test used to determine whether a worker is an employee or an independent contractor. It was first adopted by the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court (2018) and was later adopted into California law by AB5 (also known as the 'gig-worker law') in 2019. The test assumes that a worker is an employee and the hiring entity must prove that the worker is an independent contractor.
The three conditions that must be satisfied for a worker to be considered an independent contractor under the ABC test are:
- 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.
- The worker performs work that is outside the usual course of the hiring entity's business.
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
The ABC test is used for most workers, but for some jobs, industries, and contracting relationships, the Borello multifactor test applies. There are also some exemptions to the ABC test for certain industries, occupations, or contracting relationships, which may involve complicated rules and criteria.
AB5 has altered how workers are classified in California, with many workers who were previously categorized as independent contractors being reclassified as employees. This has resulted in increased financial liability for companies that don't understand the law, as employees are typically more expensive to hire than independent contractors due to eligibility for benefits including overtime, healthcare, retirement, and unemployment insurance.
To avoid misclassification of workers, businesses should evaluate their working arrangements and ensure they are appropriately classifying their workers as required by law. They can do this by completing a full analysis of their contractors and using the ABC test to determine if reclassification is necessary. Businesses can also seek advice from lawyers or experienced business consultants to ensure correct classifications.
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AB5 exemptions
AB5, or California Assembly Bill 5, is a law that came into effect on January 1, 2020, that significantly alters how workers are classified in the state. The law creates a new employment classification, making all workers employees (W-2 employees) unless proven otherwise by the employer. This means that workers are entitled to benefits such as overtime, healthcare, retirement, and unemployment insurance.
AB5 provides exemptions for certain professions and occupations. Lawyers, doctors, dentists, hair stylists, accountants, insurance agents, engineers, real estate agents, financial advisors, and some healthcare workers are exempt from compliance with AB5. Additionally, workers involved in creating, marketing, promoting, or distributing music, including photographers working on recording photo shoots, album covers, and other press and publicity purposes, are also exempt.
The ABC Test, which was established by the California Supreme Court in 2018, is used to determine if a worker is an employee or an independent contractor. However, workers who meet an exception to AB5 follow the less strict Borello Test, which was also established by the California Supreme Court in 1989. This test considers factors such as the level of control exerted by the employer over the manner and means of accomplishing the desired result.
The AB5 law is complex and constantly evolving, with new exemptions being added. For example, on September 4, 2020, Governor Gavin Newsom signed AB 2257, which immediately exempted additional professions from the law. As a result, businesses should seek legal counsel to ensure they are appropriately classifying their workers and to stay updated with any changes to the law.
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AB5 and worker reclassification
California's Assembly Bill 5 (AB5), also known as the "gig-worker law", is a law that alters how workers are classified in the state. Effective 1 January 2020, AB5 redefines the employment status of workers, potentially including those previously categorized as "independent contractors" (1099 contractors) and re-categorizing them as "employees" (W-2 employees).
AB5 seeks to redefine most workers as employees, thereby boosting their benefits under the law. Under the rules of AB5, all workers are presumed to be W-2 employees of a company unless the employer can demonstrate that the workers are 1099 independent contractors under the "ABC Test" in California. The ABC Test was first adopted by the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court (2018) and was later adopted into AB5 when it was signed into law by the Governor of California in September 2019.
Under the ABC Test, a worker is considered an employee and not an independent contractor unless the hiring entity satisfies all three of the following conditions:
- 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.
- The worker performs work that is outside the usual course of the hiring entity's business.
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
AB5 has resulted in a significant decline in self-employment and overall employment in California. However, it has also led to a reduction in employment, hours worked, or wages. The bill does not offer workers one of the most important labor and employment rights: the right to join a union.
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AB5 and worker benefits
The California Assembly Bill 5 (AB5), also known as the 'gig-worker law', came into effect on 1 January 2020. The bill was designed to regulate companies that hire gig workers in large numbers, such as Uber, Lyft, Airbnb, Amazon Flex, and DoorDash.
AB5 adopts the ''ABC test' to determine whether workers are employees or independent contractors. Under this test, workers are presumed to be employees, and a worker can only be classified as an independent contractor if they satisfy the ABC test. The three criteria are:
- The worker is free to perform services without the control or direction of the company.
- The worker is performing tasks that are outside the usual course of the company's business activities.
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
The ABC test is a higher standard that companies must use to prove workers are independent contractors than was previously used in California. The bill aims to prevent companies from misclassifying their workers as independent contractors, thereby depriving them of benefits and protections, including minimum wage, overtime, healthcare, retirement, unemployment insurance, expense reimbursements, rest breaks, and workers' compensation.
AB5 has faced opposition, with some arguing that it will cost workers flexibility. There are also concerns about the financial burden on companies that must reclassify their workers, as well as the potential for retroactive claims for benefits by reclassified workers. However, AB5 supporters believe it creates a level playing field for workers, ensuring they receive the benefits and protections they are entitled to under California law.
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AB5 and worker misclassification
In September 2019, California adopted a new law, Assembly Bill 5 (AB5), to combat the misclassification of workers. The law came into effect on January 1, 2020, and applies across all sectors of work in California. AB5 addresses employment status when a hiring entity claims that the person hired is an independent contractor.
The legislation adopts the "ABC" test to determine whether a worker is an employee or an independent contractor. This test presumes that a worker is an employee unless the employer can demonstrate that the worker:
- Is free from the control and direction of the hiring entity in connection with the performance of the work
- Performs work that is outside the usual course of the hiring entity's business
- Is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed
The ABC test was first adopted by the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court of Los Angeles in 2018. AB5 codifies this decision and writes it into the Labor Code.
AB5 helps ensure that workers in California are correctly classified as employees and have access to basic labor and employment protections and benefits, such as minimum wage, overtime, healthcare, retirement, and unemployment insurance. The law also protects law-abiding businesses from unfair competition by companies that cut costs by misclassifying workers.
However, it is important to note that AB5 does not offer workers the right to join a union, and there are exemptions for certain professions and occupations, such as lawyers, doctors, and freelance journalists.
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Frequently asked questions
AB5 applies to businesses that hire independent contractors in California. If your company is not located in California, doesn’t hire independent contractors working in California, or doesn’t have independent contractors who regularly travel to California for business, you are likely beyond the reach of AB5.
The ABC test is a three-pronged approach to determine if workers in California are employees or independent contractors. The test was first adopted by the California Supreme Court in 2018.
Exemptions from AB5 include lawyers, doctors, dentists, hair stylists, accountants, insurance agents, engineers, real estate agents, financial advisors, and some healthcare workers.
