Article Posted on 09/25/2019
Governor Newsom signed AB-5 into law on September 18, 2019 which significantly reduces the likelihood that a worker will meet the tests of an ‘independent contractor’ in the state of California. AB-5 comes after the ground-breaking CA Supreme Court decision last year in the Dynamex Case, which required a simple but highly restrictive ‘ABC test’ be used to determine if a worker qualified as an ‘independent contractor’.
Under the ‘ABC test’ a business must prove that the worker is:
- Free from the company’s control
- Doing work that isn’t central to the company’s business, and
- Has an independent business in that industry
If all three tests are not met, then the worker must be classified as an employee.
AB-5 makes the ‘ABC test’ law in California, effective January 1, 2020 and requires it be used across all industries that aren’t specifically exempted. This will be a huge shake-up to many industries that have historically been based on the independent contractor work-force. Some industries were able to lobby successfully for exemption from AB-5, while others are exempt if certain conditions are met, or have a later effective date. The full text of the bill including the exempted industries can be found here https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB5 .
AB-5 will have a huge impact on businesses and workers in California and is likely to spark a lot of legal battles. While it will take time to see exactly how this new law is implemented and enforced, the rest of the states are watching. You can expect to hear much more about this new CA law on several fronts (personal, professional, political) for quite a while.