Assembly Bill 5 (AB5) to Curb Businesses’ Use of Independent Contractors

Assembly Bill 5 (AB5), authored by Assemblywoman Lorena Gonzalez, was signed into law late Wednesday by California Governor Gavin Newsom and is now on the books. The bill will reclassify independent contractors to employee status. Under AB5, workers would have to be assigned to tasks outside of the business’s usual work course, not integral to the business, and be free from the control and direction of the hiring entity. These two factors alone will impact the business model of ridesharing companies like Uber and Lyft. Many rideshare drivers are not happy with what the changes could mean for them. Some are choosing to see what the potential benefits could be.

Independent Contractors are not covered by laws guaranteeing a minimum wage, overtime pay, sick leave, family leave, unemployment and disability insurance, workers’ compensation, and protection against discrimination or sexual harassment. Nor do businesses pay into the worker’s Social Security or Medicare funds.

AB5 Exemptions

AB5 exempted a host of occupations — but not platform-based gig giants. Exempted workers include doctors, dentists, lawyers, engineers, accountants, architects, realtors, travel agents, graphic designers, human resources administrators, grant writers, marketers, fine artists, investment advisors, broker-dealers, and others.

AB5 categorizes and expands on a 2018 California Supreme Court groundbreaking decision last year known as Dynamex, which adopted the ABC Test, a strict, three-part standard for determining whether workers should be treated as employees, modeled on a Massachusetts test. Without the bill, the court decision would have affected a far broader share of the economy.

Other states have adopted rules to extend benefits such as unemployment insurance and workers’ comp to independent contractors. But California’s bill is arguably the strongest in the nation. It gives the state and cities the right to file suit against companies over misclassification, overriding the arbitration agreements that many businesses use to shield themselves from worker complaints. Under AB5, which will take effect Jan. 1, Californians will be considered to be employees of a business unless an employer can show the work they perform meets a detailed set of criteria established by a California Supreme Court ruling last year. 1

Are you engaging independent contractors compliantly? Even if you don’t do business in California, you might want some advice on classifying workers appropriately. Independent contractors can remain a viable operating option, and if your organization needs some help ensuring your ICs are classified properly, ClearPath Workforce Management has an IC evaluation process and risk mitigation services that bridge the gaps to enable compliant engagement of this highly skilled talent and to expand your talent supply chain. ClearIC™ can automate and simplify the Independent Contractor evaluation process while mitigating your risk via our full-service IC vetting process. Contact ClearPath for a complimentary 1:1 review of your current worker status.