Everything You Need to Know About The California AB5 Law

Everything You Need to Know About The California AB5 Law

Toyota Prius offering rides for UBER and LYFT in San Francisco Bay Area. These companies will be affected by the AB5 law.

California Assembly Bill 5 (AB5), signed into law by the state’s governor in September of 2019, went into effect on January 1, 2020.  Informally referred to as the “Gig Worker” bill, AB5 means some big changes for contractors and companies who use them. This blog will offer a broad overview of AB5, its current status, potential complications you might face, and some examples of ways California businesses and other businesses have responded to the new law.

What Does California Assembly Bill 5 (AB5) Do?

The new gig worker law forces employers to potentially recognize independent contractors (gig workers) as employees. AB5’s goal is to regulate companies that hire gig workers in large quantities such as Uber and Lyft. The law provides only about 50 or so exceptions and companies must apply a three-pronged test to prove workers are independent contractors instead of employees.

The ABC test to determine whether an individual is an independent contractor has three prongs. In order to overcome the presumption that a worker is an employee and establish that a worker is properly engaged as an independent contractor, the company must establish that:

  • The worker is free from the control and direction of the company in connection with the performance of the work, both under the contract for the performance of the work and in fact;
  • The worker performs work that is outside the usual course of the company’s business; –and–
  • The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the company.

Current Status of California AB5

The LA Times reports that 34 pieces of legislation have been introduced in the California legislature related to AB5 since the law went into effect. Many of the bills expand the list of professions exempt from classification as an employee. So, businesses don’t have to pay workplace benefits and payroll taxes.

One particular bill, Assembly Bill 1850, championed by Assemblywoman, Lorena Gonzalez, seeks to remove AB5’s limit on the number of projects a freelance writer or photographer could accept in a year. Instead, these creative freelancers would be classified as employees based on whether or not a contract sets the time and payment.  This bill would also allow contractors to work for multiple companies and prohibits them from working on-site for any business.

Potential Complications of AB5

Many of the complications surrounding AB5 center on the cost of reclassifying gig workers as employees. Take Uber, for example. Under this new law, all of their drivers will be considered employees. This means Uber has to pay them minimum wage, provide sick leave and personal days, offer health insurance, and pay unemployment insurance and workers’ compensation insurance.

This will impact Uber’s bottom line, as well as any other company that has to reclassify workers. Businesses who are caught misclassifying their employees as independent contractors face a $25,000 fine for each violation.  For companies who misclassify their workers, AB5 also gives individual workers and groups of similar workers the legal basis to file lawsuits against companies to collect back pay and benefits.

Business Responses to AB5

Businesses have had varying responses to AB5. Some are complying with the new law, while others are resisting. More than a handful of businesses have legally challenged the law. Independent truck drivers were some of the hardest hit by AB5; a federal judge issued a preliminary injunction in January to exempt approximately 70,000 truckers.

Uber, Lyft, and DoorDash have taken a different approach. Uber and Lyft are not reclassifying drivers as independent contractors. However, they have been collecting signatures to create a statewide ballot measure for the November election. The proposed measure would let drivers remain independent contractors, but also allow them to receive job-related benefits.

How We Can Help

Changes are still underway as a result of AB5. If you use contractors in your business, you will likely be affected. If you’re unsure about how AB5 impacts your business, contact the Law Office of Elliott J. Brown. We offer a variety of solutions from counsel to reviewing and drafting employee contracts. This way, you can protect yourself in the wake of California’s new labor laws.

Adam Blaier, Esq.