The passage last year of Assembly Bill 5, which became law on Jan. 1, has sent shock waves and confusion through California’s labor market. More than 30 bills have been introduced in the Legislature to change, delay or overturn the “gig economy” bill.
Numerous lawsuits have been filed by both employers and independent contractors. And affected industries are turning to the November ballot to qualify an initiative asking voters to exempt some contract workers, such as Lyft and Uber drivers.
In this chaos, employers who depend on independent contractors must obey the new law, while they monitor ongoing endeavors to reform it. They also should contact their elected representatives and explain how AB 5 affects business and hiring practices, as well as the livelihoods of independent contractors.
Authored last year by San Diego Democratic Assemblywoman Lorena Gonzalez, a former labor organizer, AB 5 was introduced in the wake of the California Supreme Court’s Dynamex ruling. The case redefined the classifications of “contract worker” and “employee,” who is entitled to receive benefits and protections.
Dynamex is a nationwide, on-demand, same-day, pick up and delivery service. Prior to 2004, the company classified its California drivers as employees. In a cost cutting move starting in 2004, Dynamex reclassified the drivers as “independent contractors.”
For 30 years prior to the court’s landmark 2018 ruling, the 11-factor Borello test was applied to classify “independent contractors.” The test basically focused on whether the employer had control over the means and manner of the work performed. Also considered was if the contractor used his or her own work tools, had established a business, and was able to work for other clients.
The 2018 Dynamex ruling replaced that with an ABC test, which asks if contractors: A) Are free from control or direction in work performed; B) Perform specialized services that differ from a client’s usual business; and C) Maintain an independently established business offering services to clients.
Within that test, Gonzalez crafted a far-reaching bill that exempts some industries and restricts the work in others. Basically, AB 5 limits employers’ ability to label workers as “independent contractors” and requires benefits, such as sick pay and overtime pay, to be provided to contractors who work beyond the limits.
Among the occupations exempted from the new law were doctors, lawyers, architects, engineers, marketing specialists, human resources administrators, travel agents, graphic designers, building contractors, hair stylists and barbers, licensed estheticians and manicurists. But so many others have been ensnared that a backlash has prompted a scramble to amend AB 5.
A much-cited example of how AB 5 impacts independent contractors is the limit it sets on freelance writers and photographers. AB 5 places a cap of 35 annual submissions a year on the work writers and photographers can make to a publication or media outlet before the “independent contractor” is considered an employee, who must be provided benefits.
A freelancer who writes only one column a week, for example, will hit the annual limit by August. Freelance writers and photographers report having their contracts canceled and incomes cut as a result of the new law. The long list of other similarly impacted freelancers includes screen writers, musicians, newspaper carriers, physical therapists, translators, horse trainers, youth sports umpires, loggers, pharmacists, etc.
Gonzalez said she is considering removing the cap on the number of submissions freelance writers and photographers can contribute to a publication. But she would require those freelancers to be covered by contracts that specify such things as payment rates and the ownership of “intellectual property.”
Earlier this year, a federal judge issued a preliminary injunction to ensure the law would not apply to some truckers.
But the proposed law changes, ballot initiative and court challenges do not change the fact that AB 5 and its far-reaching restrictions on the use of independent contractors now are state law that employers must follow, or face penalties, including hefty fines. Prudent employers should:
- Audit current company practices and classifications. To be safe, consult an attorney and human resources specialist.
- If independent contractors are misclassified, change the working arrangement, or move the freelancer to employee status.
- Update organizational charts.
- Review and, if necessary, revise independent contractor agreements.
- Replace casual freelance arrangements with carefully written contracts.
- Contact elected representatives and explain how AB 5 affects hiring practices and the use of independent contractors.
Karen Bonanno is president of the Bakersfield-based human resources consulting firm P.A.S. Associates and P.A.S. Investigations. She can be contacted through her website www.PASassociates.com and through the P.A.S. Facebook page.