Small Business and AB-5 in California - Independent Contractors

What is Assembly Bill 5, and How Does it Affect Independent Contractors?

The California Assembly’s most recent foray into gig work legislation – an attempt to help workers get the employee status they deserve, rather than allowing companies to consider them independent contractors just to save a few bucks – is based on a California Supreme Court decision on employee misclassification.

What is Assembly Bill 5, and How Does it Affect Independent Contractors?

What is Assembly Bill 5 and How Does it Affect Independent ContractorsAssembly Bill 5 still needs to pass the Senate and be signed by the governor, but if it goes through, it will apply a three-part criteria to determine whether a worker is an employee or an independent contractor. In order to be a contractor – a true independent contractor, that is, rather than what many businesses are considering contractors at this time – a worker must be:

  • Free from the company’s control when it comes to how work gets done
  • Performing work that isn’t central to the company’s business
  • Independent in his or her business in that particular trade

For example, Uber and Lyft drivers could become employees if the legislation passes because the work they do is central to the company’s business. Without drivers, Uber and Lyft couldn’t exist.

Related: Contractor vs. Employee: What are the differences?

Is AB-5 Necessary?

According to Assemblywoman Lorena Gonzalez (D-San Diego), the bill is necessary because companies often misclassify workers just to avoid following laws on minimum wage, overtime and benefits. Some businesses are against AB-5, saying that it could devastate them because independent contractors help companies make larger profits.

As it stands now, many types of workers are exempt, including:

  • Accountants
  • Architects
  • Dentists
  • Direct sellers
  • Doctors
  • Engineers
  • Hairstylists and barbers who rent booths
  • Human resources professionals with advanced degrees
  • Insurance agents
  • Investment advisers
  • Lawyers
  • Marketers with advanced degrees
  • Real estate agents

Related: Minimum wage disputes and unpaid overtime

A Word on the ABC TestWhat is Assembly Bill 5

If a worker passes the ABC test – the three criteria used to distinguish between contractors and employees – he or she is an independent contractor. The test breaks down this way:

  1. Control. The company doesn’t dictate how the work is performed. For example, the company can’t dictate work hours or on-site services or the provision of tools and materials.
  2. Scope. The work is in a field different from the hiring company’s business. A real estate brokerage that hires a professional writer to come up with blog posts, for example, is outside the scope of the hiring company’s business. However, a restaurant hiring a server is a different matter.
  3. Independence. The worker runs a business doing the same type of work that he or she is performing for the hiring company. For example, the real estate brokerage hiring a blogger who already has an established freelance writing business generally means that the writer is an independent contractor selling a service – but the server working in a restaurant probably doesn’t have an independent business that specializes in bringing food to people’s tables in various locations.

Who Does AB-5 Affect?

Uber and Lyft with AB-5 in CaliforniaThere are about 2 million Californians working as independent contractors. And although much of the controversy has circled around Uber and Lyft, the two ride-sharing companies who classify drivers as independent contractors, there are dozens of other occupations that exist in a bit of a gray area when it comes to employee misclassification – and they’ll also be affected if the legislation passes the Senate and the governor signs it.

The guidelines in the bill are very explicit, and they’d greatly diminish the gray area and provide workers with more protections if they’re entitled to work as employees rather than independent contractors. While many of the bill’s opponents are companies (like Uber and Lyft), it follows in the footsteps of Dynamex – a landmark decision by the California Supreme Court that ruled in favor of drivers working for courier and delivery company Dynamex Operations, Inc. In that case, the drivers argued for reclassification as employees rather than contractors because the employer required them to wear company uniforms and display the company logo while still providing their own vehicles and paying work-related costs.

Do You Need to Talk to an Attorney About Employee Misclassification?

If your employer has misclassified you, you could be entitled to employee benefits – but every case is different. You may need to talk to an attorney about your situation to find out whether your employer is exploiting you.

Call us at 818-230-8380 now to talk to a lawyer who understands the law and how it applies in your situation. We’ll answer your questions and tell you about your options.


Contact Us