The most widely reported legislation passed in 2019 was Assembly Bill 5, which was effective January 1, 2020 and codified new standards to determine whether a worker is an employee or an independent contractor. AB 5 incorporated the “ABC Test” introduced in 2018 by the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court of Los Angeles. The ABC Test presumes that all workers are employees, which means that the company hiring them must prove that workers meet all of the following three conditions to properly classify them as independent contractors:
A. The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under contract for the performance of the work and in fact;
B. The worker performs work outside the usual course of the hiring entity’s business; and
C. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
AB 5 establishes some exemptions to the ABC Test, such as insurance agents, physicians, attorneys, dentists, doctors, architects, securities broker-dealers and others. However, AB5 also adds criteria to the ABC Test, which may apply to your situation.
Multiple entities, including the California Trucking Association and ride-sharing companies, are challenging the new law in the courts and have sponsored a ballot initiative to reverse parts of the law. The law has been amended to exclude certain occupations since January 1, 2020. Watch our website for updates.
To make sure you are properly classifying your workers, please call us. It is easier to stay out of trouble than to get out of it.