AB-5: California redefines the terms “independent contractor” and “employee.”

The rise of the gig economy has irrevocably altered the work environment. With ridesharing and food delivery services among the top gig economy enterprises, a recent change in state employment law would affect more than 1 million California employees who are now categorized as independent contractors.

What exactly is Assembly Bill 5 in California?

Assembly Bill 5 (AB-5) was signed into law by Governor Gavin Newsom in September 2019. It redefines what constitutes an independent contractor in California, so that beginning January 1, 2020, many gig economy workers will be eligible for a guaranteed hourly wage ($12), overtime pay, labor protections, and other benefits enjoyed by full-time employees.

The ABC test vs Assembly Bill 5

The California Supreme Court issued a major judgment in 2018 that established an ABC test for companies to apply when determining whether workers are independent contractors or employees. Although numerous states utilize ABC tests to apply wage and hour regulations, unemployment laws, and labor laws in certain sectors, California’s ABC test exclusively applies to wage-order claims.

Likewise, AB-5 is intended to be utilized broadly for California employees. Employers have the burden of proof under the law, and an independent contractor is defined as someone who fits all of the following criteria:

In connection with the execution of the task, the worker is free of the hiring entity’s control and direction.
The worker does work that is not normally performed by the employing organization.
The worker is often involved in a self-established trade, activity, or company of the same sort as the job done by the employing organization.

Although it has a broader use than the ABC test, it does have certain limits. Several vocations, mostly professionals, such as attorneys, engineers, accountants, and physicians, have built-in exclusions.

What effect would AB-5 have on my business?

Regardless of worker classification, it is necessary to establish the parameters of your work arrangement in an employment contract or independent contractor agreement, among other employment and HR-related legal papers.

If you now have contractors that do not fulfill all of the new definition’s qualifications, it is critical that you take steps to comply with the new employment legislation. You may consult with a lawyer about any regulations that apply to your particular case.