AB 5 and the Independent Contractor

In December 2019, the Governor of California, Gavin Newsom, signed into law Assembly Bill 5, which drastically changes how most businesses classify independent contractors. A worker is more likely to be classified as an employee instead of an independent contractor. Although the impetus for this law was to give more employment benefits to ride sharing, delivery, and “gig economy” workers, its impact is much more far reaching. The law codifies a California Supreme Court decision, Dynamex Operations West v. Superior Court of Los Angeles (Dynamex) and alters the application of a 20 year old law.

In essence, there is now a 3-part test to determine if a worker is an employee or an independent contractor (the “ABC test”):

(A) The hiring entity does not control or direct the performance of work;

(B) The person performs work outside the usual course of the hiring entity’s business; and

(C) The person is customarily engaged in an independently established trade, occupation or business.

If all these 3 conditions are met, a worker may be classified as an independent contractor. If not, the worker is an employee. Some exceptions have been made to the application of this new law, mostly for licensed professionals, such as doctors, lawyers, real estate professionals, broker dealers, etc. As stated, although this was intended to target the above mentioned workers, many businesses that have hired independent contractors to do part time work, such as bookkeepers, free lance journalists, etc., would be forced to classify these individuals as employees even though they do not solely work for the business. The law is new and vague, and there are already legal challenges being raised and amendments and other changes being proposed, but for now employers, especially small businesses, must be even more careful of their hiring practices while the law is interpreted and its parameters are (hopefully) defined in more detail.

See The Daily Recorder – https://www.law.com/therecorder/2019/09/19/ab-5-changing-the-landscape-for-independent-contractor-analysis/?slreturn=20200109121407