California’s New AB5 Employment Law
Every time a legislative session ends, California seems to pass a new law governing employer/employee relationships. Broadscale confusion ensues when the law is applicable to millions of workers across the state. Meanwhile, there are likely to be multiple lawsuits filed in a bid to stop the new law from being enforced. This is essentially what you have right now in regards to California’s AB-5 employment law. Below, we’ll attempt to explain the new law, how it works, who will be affected, and what you should do.
Employment Classification in the State of California
Are you an employee for a company or are you an independent contractor? This question is relevant to every individual who works for any company. If you’re an employee, you’re entitled to workers’ compensation coverage, overtime, unemployment, and anti-discrimination protections. As an independent contractor, you’re entitled to set your own hours.
From the employer’s perspective, having a work pool of employees is a liability nightmare. For that reason, several companies (like Uber) operate on a work pool of independent contractors.
This tactic, of course, has not gone unnoticed by legislators who are attempting to prevent this loophole from being used to exploit California’s working class. AB-5 is an attempt to prevent employers from intentionally misclassifying employees as independent contractors.
How Does AB-5 Work?
From now on, any worker who works for a company will be considered (by default) an employee of that company. The onus is then placed on the company to prove that the individual is an independent contractor and not an employee.
How can they do that? Well, they have to show that the individual worker meets the legal criteria of an independent contractor. California will now use what is called the ABC test.
- Is the worker free from the control and direction of the hirer in connection with the performance of their work? In other words, does the hiring agent direct the individual how to perform their work? If the hiring agent has control over how the work is performed, they are now automatically considered an employee as opposed to a contractor.
- Does the worker perform work that is outside of the natural scope of the hiring agent’s line of business? If so, they are a contractor. If not, they are an employee.
- Is the worker customarily engaged in independent trade? In other words, they usually work as a contractor? If not, then they’re an employee.
Any employer who wants to name their worker an independent contractor must prove to a court that they meet all of the above criteria.
While several industries will be affected by the new legislation (notably rideshare drivers and freelance journalists) there are others that won’t be disrupted nearly as much. These workers will be subject to the Borello Test as opposed to ABC, but there may be other provisions that are unique to their profession. In other words, even the exceptions have exceptions.
Workers subject to the Borello Test include:
- Physicians, surgeons, and other medical workers and veterinarians
- Insurance brokers
- Architects and engineers
- Private investigators
- Stockbrokers and financial planners
- Direct salespeople
Workers providing professional services to companies must pass the Borello Test and meet six additional criteria. Affected workers include:
- Marketing agents
- Travel agents
- Graphic designers
- Grant writers
- Fine artists
- Enrolled agents
- Payment processing agents
- Licensed aestheticians or beauticians
Other categories of affected workers include:
- Business-to-business contractors
- Construction subcontractors
- Real estate agents
- Businesses that operate through referral agencies
- Repossession agencies
- Motor club drivers
Lastly, there is an exemption for commercial fishermen that will lapse on January 1st of 2023.
What Do I Need to Know?
You should know that determining whether or not a worker is an employee or an independent contractor is complicated. While the majority of employees will be subject to the new stricter ABC test, there will be those who are subject to the Borello Test plus provisions that are unique to their line of work. In other words, you may have a completely different set of strictures for those in one line of work versus another.
For that reason, it helps to contact an attorney who is licensed to operate in the State of California who handles employment disputes. The Herbert Law Office can help protect your company from cumbersome laws and confusing provisions of California’s AB5 Employment Law. Call us today for more information.