As of January 1, 2020, California’s AB5 may require employers to reclassify hundreds of thousands of independent contractors as employees with broad labor law protections. The new law codifies the “ABC test” adopted by the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court of Los Angeles in 2018. Under the ABC test, a worker may only be classified as an independent contractor if it can be shown that:
A. The worker is free from the control and direction of the hiring entity, both under the contract for the performance of work and in fact;
B. The worker performs work that is outside of the usual course of the hiring entity’s business, and
C. The worker is engaged in independently established trade, occupation, or business that is of the same nature as the work performed for the hiring entity.
This strict three-pronged test now applies to the requirements of the California Labor Code and the California Unemployment Insurance Code. Beginning July 1, 2020, it will also apply to the California Workers Compensation Code.
While the law provides exemptions for certain occupations and industries (including accountants, architects, dentists, insurance brokers, lawyers, and engineers), the Legislature declined to exempt app-based ride services and food delivery companies, whose workers complain they often earn less than minimum wage. Uber, Lyft, DoorDash, Postmates and Instacart are mounting a ballot initiative to exempt their workers, while trucking associations, photographers, and freelance journalists have brought other initiatives opposing the law.
Given such controversy, the law’s author intends to introduce additional legislation to clarify AB5 this year. In the meantime, employers should consult with legal counsel and review independent contractor classifications to ensure proper classification of workers pursuant to the ABC test.