Popularly known as the “gig worker bill,” California Assembly Bill 5 (AB5) was signed into law in September 2019 by Governor Gavin Newsom. Taking effect on January 1, 2020, it sets the standard as to whether a worker is classified as an employee or an independent contractor. Simply put, the bill extends employee classification status to gig workers and is designed to regulate companies that rely on gig workers in large numbers, such as Uber and DoorDash. AB5 expands on a ruling made in a case from 2018, Dynamex Operations West, Inc. vs. Superior Court of Los Angeles. Let’s take a look at what this means for both workers and employers alike.
The California Supreme Court ruled in the 2018 case that companies must use a three-part test to determine whether a worker is an independent contractor or an employee. By this test, now codified by AB5, a worker is classified as an employee unless the employer can prove three conditions:
- The worker is free from the control and direction of the hiring entity in connection with the performance of the work
- The worker performs work that is outside of the usual course of the hiring entity’s business
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity
Many independent contractors will qualify as employees by this test, and under the new bill, it means that these workers will be entitled to protections such as minimum wage, expense reimbursements, employee benefits, rest breaks, among other benefits afforded to employees under California state law. The bill works in favor of the workers, as it levels the playing field for those working in the gig economy and those who work as regular employees. On the other hand, as former gig workers are treated as employees, they will be required to stick to a new set of standards that will dictate how they perform their work.
One of the major reasons that being a driver for delivery or ride-sharing company has been so popular is because of the flexibility in scheduling: workers can choose when and when not to work. When classified as an employee, however, they may lose that choice. The law doesn’t eliminate that flexibility and is subject to interpretation. That being said, if employers incur the greater cost of paying for employees instead of contractors, they may take advantage of the ability this gives them to exert more control.
Not all businesses that rely on gig workers in California will be affected by the new law. There are over fifty professions and types of businesses that are exempt, including insurance agents, attorneys, and real estate agents. The ease of transition for non-exempt companies depends on cost, as the expenses for providing employee benefits can significantly affect the bottom line.