In September, California adopted a new law aimed at combatting the misclassification of workers. The legislation, Assembly Bill (AB) 5, will take effect on January 1, 2020. AB5 adopts the “ABC” test that has been used by courts and government agencies to determine employee status. Under this test, workers can only be classified as independent contractors when a business demonstrates that the workers:
- Are free from control and direction by the hiring company;
- Perform work outside the usual course of business of the hiring entity; and
- Are independently established in that trade, occupation, or business.
Workers who don’t meet all three of these conditions must be classified as employees for purposes of state wage and hour protections. AB5 will help ensure that California’s workers who perform core work under company control versus as independent businesses have access to basic labor and employment protections and benefits denied independent contractors, including minimum wage and overtime protections, paid sick days, workers’ compensation benefits, and unemployment insurance benefits. Further, the legislation will protect law-abiding businesses that properly classify workers from unfair competition from companies that cut costs by misclassifying workers: AB5 will make it more difficult for companies to avoid paying their fair share of Social Security, Medicare, and unemployment insurance taxes and avoid providing state workers’ compensation insurance. In contrast, employers would not be held accountable under a ballot initiative backed by digital platform companies.