California Assembly Bill 5 (AB5):
The AB5 is a legislation signed into law by Governor Gavin Newsom on 19 September 2019 and put into effect on 1 January 2020. It targets all independent contractors, “gig workers” working with companies.
The AB5 law tends to reclassify the gig workers and consider them employees, so its purpose is to extend employee classification.
It is important to mention that this law is only applicable in the state of California.
To classify whether a gig worker is considered an independent contractor or an employee by the work done to the company, the person should take the ABC test. AB 5 now applies that test to all provisions of California’s Labor Code. Under this test, California presumes any person providing labor is an employee unless the hiring entity can prove:
- The person is free from control and direction of the hiring entity in his work performance, both under the contract; and in fact;
- The person performs work outside the usual course of the hiring entity’s business; and
- The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
The person should prove that he satisfies all 3 of them. If one does not apply, then he is considered an employee.
It is important to mention that there are several cases where the AB5 law does not apply, and these cases are the following:
- Individuals who hold active licenses such as architects, accountants, lawyers etc.
- Business-to-business service provider (in the case where there is a written agreement and where the service provider fulfills a handful of conditions).
- Professional services (in the case where the latter fulfills certain conditions).
In these mentioned cases, the Borello test identifies whether the person or company is considered an independent contractor or an employee.
The main difference between the AB5 test and the Borello test is that the first one is very objective, but the Borello test is subjective. All the factors are balanced and weighed against each other to determine whether the person is an employee.
The main companies affected by the AB5 law are ride-sharing kings Uber, Lyft, and delivery services such as Doordash.
Advantages of AB5
When a person or company is classified as an employee, he/it will be entitled to minimum wage, expense reimbursements, employee benefits, rest breaks, and other benefits afforded to employees under California state law.
Disadvantages of AB5
One of the main benefits of being an independent worker is the freedom and flexibility in setting the working hours. When the worker is considered an employee, such freedom and flexibility cannot be exercised. They are expected to adhere to a new set of standards regarding how they perform their work.
Besides, the employer himself may not be happy with considering the worker as an employee cause such consideration affects them in terms of the costs associated with the employee. These costs are way higher than the ones associated with an independent contractor.
