New State Law Alters Employment Landscape

Governor Gavin Newsom has signed a bill into law that codifies a court ruling from last year that set new ground rules for what constitutes an independent contractor, and which expands on that ruling. Now that AB 5 is the law, labor laws will apply to any independent contractors who have to be reclassified as employees.

The Dynamex “ABC Test”

Per Assembly Bill 5 - The hiring entity must establish each of the following three factors, commonly known as the “ABC Test”:

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

Occupations Affected

Most occupations will be affected, but below are some of the industries that will be impacted significantly:  

  • Rideshare & delivery services – Like Uber, Lyft, DoorDash and Postmates
  • Truck drivers – Heavy duty trucks, Amazon delivery trucks, some tow truck companies
  • Janitors & housekeepers – Commercial cleaning services
  • Newspaper carriers – The bill’s author agreed to delay implementation by one year in a concession to newspaper publishers.
  • Unlicensed manicurists – Licensed manicurists will get a two-year exemption.
  • Health aides – Nursing homes, assisted living facilities
  • Land surveyors, landscape architects, geologists
  • Campaign workers, Strippers, Language Interpreters, and Rabbis

Occupations Not Affected

Occupations that will be specifically exempted by the bill include the following. Please note, these occupations are only exempt from the Dynamex ABC Test, they will still be subject to the Borello Test that has been used in the past to determine if the individual qualifies as an independent contractor or an employee.

  • Some licensed professionals (lawyers, architects, engineers)
  • Direct sales (the salesperson’s compensation must be based on actual sales rather than wholesale purchases or referrals)
  • Commercial fishermen (exempt until 2023)
  • Estheticians, electrologists, manicurists (must be licensed)
  • Builders and contractors (who work for construction firms that build major infrastructure projects and large buildings)
  • Professional services (marketing, HR administrators, travel agents, graphic designers, grant writers, fine artists)
  • Freelance writers, photographers (provided the worker contributes no more than 35 submissions to an outlet in a year)
  • Hair stylists, barbers (provided that the person sets their own rates and schedule)
  • Tutors (must teach their own curriculum, and does not apply to public school tutors)
  • AAA-affiliated tow truck drivers, Insurance brokers, accountants, securities broker-dealers, investment advisors, Doctors, Financial services, Real estate agents.

Frequently Asked Questions

How is being an employee different from being a contractor?

  • Employees are entitled to benefits such as minimum wage, workers’ compensation, unemployment insurance, expense reimbursement, paid sick leave and paid family leave. Employers pay half of employees’ Social Security tax.

How will AB5 be enforced?

  • Various California agencies, including the Labor Commissioner’s Office, the Employment Development Department and the Franchise Tax Board, have authority over workers misclassification. But their efforts mainly happen via individual cases. For larger changes, expect to see a rash of lawsuits, both from the private bar and from public attorneys. AB5 empowers the attorney general, city attorneys in large cities, and local prosecutors to sue companies over violations. The city attorneys of San Francisco and Los Angeles both appear ready to act on this. It would take a judge’s order to force Uber and Lyft to reclassify — and it’s likely they’d fight their cases for years.

Is AB5 set in stone, or could there be more legislative changes?

  • Effective 1/1/2020, AB5 is the governing law. There could be more changes when the Legislature reconvenes in 2020. For one thing, industries such as truck owner-operators continue to lobby fiercely for exemptions. For another, Uber, Lyft and other gig companies still hope to win passage of their alternative. And labor will be seeking the right to unionize for gig workers.