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California’s AB5: What it Means for Employers

14 Dec California’s AB5: What it Means for Employers

AB 5, which expands the test for determining whether an employee should be classified as an independent contractor, goes into effect in California on January 1, 2020, and will likely affect the majority of employers. As a result, every business in California should consider consulting with an experienced employment law attorney in order to ensure that they are in compliance with the new law.

Under The New Law, More Workers Must be Considered Employees Versus Independent Contractors

The legislation codifies the decision handed down by the California Supreme Court in Dyanmex Operations West, Inc. v. Superior Court of Los Angeles (2018) and clarifies its application. Specifically, it expands the use of the existing “ABC” test and declares that anyone who provides labor or services shall be considered an employee instead of an independent contractor unless the employer (or hiring party) demonstrates that:

  • The worker hired is free from the control and direction of the hiring entity;
  • The worker performs work that is outside of the hiring entity’s usual business; and
  • The worker is customarily engaged in an independently established business, occupation, or trade.

The new law  not only significantly narrows the pool of individuals that employers can consider to be independent contractors versus employees by expanding this “ABC test,” but also applies this new standard to essentially any employers that do business in California. Any entity that fails to adapt to the new standard opens themselves up to claims from workers claiming that they were misclassified as independent contractors, and this includes class action lawsuits as well (additional wage and hour lawsuits, overtime claims, etc.).

What Will Cause the Most Confusion for Employers?

It is estimated that determining whether or not the worker is engaged in performing work that is outside of the hiring entity’s usual course of business will likely cause the biggest headache for employers that regularly depend upon working with independent contractors and have to figure out what to do in the face of the new law. AB 5 does not provide a definition for what, exactly, this means, which means that this will likely be determined by the courts if/when litigation is brought.

Exemptions from The ABC Test

However, there are several categories of employers that are exempt from this new standard, including the following:

  • Architects
  • Lawyers
  • Grant writers
  • Tutors
  • Truck drivers
  • Manicurists

For these entities, the common law agency test applies or, when it comes to workers’ compensation laws, the “economic realities” test established by S.G. Borello & Sons v. Department of Industrial Relations, which dictates that the most significant factor to consider is whether the employer has control or the right to control the worker; not only in terms of the work; but also in terms of the manner and means in which it is performed.

Speak with Our California Employment Law Attorneys if You Have Any Questions

There will inevitably be a significant amount of confusion from employers regarding whether or not they should classify someone as an independent contractor, especially if they may be considered exempt from the new standard. If you have any questions, contact our experienced California employment law attorneys at (310) 620-7172 or info@heerdeblum.com to find out how we can help. We suggest you do so in advance of January 1, when the new law goes into effect. Our attorneys not only regularly represent clients in employment law litigation, but also business and commercial litigation, intellectual property, copyright and trademark law, and entertainment litigation.