Assembly Bill 5, or AB-5, has now codified the definition of Independent Contractor that the California Supreme Court ruled on in 2018 has been passed. It will become effective on January 1st. Please note that when the Supreme Court made this ruling in April last year, they said it was retroactive. With that in mind, the requirements are already in effect, regardless of the effective date of AB5.

Independent Contract workers don’t qualify for labor protections under the Fair Labor Standards Act, Americans with Disabilities Act or the Civil Right Act. They do not enjoy labor protections that employees do, such as minimum wage, overtime, break times, workers compensation insurance, health benefits or unemployment insurance. Independent Contractors pay the entire portion of employment taxes. All of this can add up to savings for employers.

The biggest impact of AB-5 may be to companies with an app-based model for employment that rely heavily on contract workers. Think Uber and Lyft. Other companies, regardless of size, may also be impacted if they too are relying on contract workers whose work does not meet the standard for actual contract work under the “ABC” test and the Borello case from 1989.

Next Steps

Since the Dynamex decision in April 2018, companies should have already started re-evaluating their relationships with contract workers and reclassifying as appropriate to meet the “ABC” test. If you have not already done so, this fall is the time to get that task done. Review the relationship with your contract workers now to determine if they should be considered for reclassification. Generally, evaluate that relationship to determine if they are:

a. Free from the “control and direction” of the company in how and when they perform their work in fact; and
b. Are performing work that falls “outside the course” of your company’s usual business. This means an independent contractor may not deliver services that you re-sell to your customers; and
c. Typically perform the same type of work as an independent entity. They must own an independently established trade, occupation or business.

Exceptions

There are limited exceptions to AB5. It allows for limited exemptions of several professions, including doctors, lawyers, architects, engineers, accountants, HR administrators, and others. It is possible that more occupations will be added to the list after the dust settles. It is unwise to wait to see what other professions may be added since the intent of the law is already enforce.

For help with properly classifying workers, for assistance with your reclassification process, or other employment issues, contact us at 408-834-9069 or smallbizhrservices.com/contact.