California’s New Employment Law on Contractors
The line between who qualifies as an “employee” and who is considered an “independent contractor” has historically been a fine one. The proper classification of a worker, however, is incredibly important for both the worker and the employer: if the worker is an “employee,” the employer is required to provide certain benefits and protections to that worker. If the worker is an independent contractor, there may be tax consequences for the worker of which he or she should be aware. A new Assembly Bill (AB), AB 5, would aim to clarify how workers ought to be classified by adopting a test first announced by the California Supreme Court.
The ABC Test for Independent Contractors
Assembly Bill 5 adopts a test that was first set forth in the case Dynamex Operations West, Inc. v. Superior Court of Los Angeles. In that case, a delivery company switched the classification of all of its delivery drivers from employees to independent contractors. Along with the change, the drivers were suddenly required to pay for their own delivery trucks, fuel costs, tolls, maintenance for their trucks, and provide their own worker’s compensation insurance.
The California Supreme Court employed an “ABC test” and determined that, under this test, the delivery drivers were properly classified as employees and not as independent contractors. Under the test, a worker could be classified as an independent contractor only if:
A: The company does not control or direct the worker while the worker is on the job;
B: The worker’s tasks are different or distinct from the company’s “usual course or type of business”; and
C: The worker has his or her own trade or business that is separate and distinct from the company.
Under the test, the worker must satisfy all three parts of the ABC test in order for the worker to be properly classified as an independent contractor. If the worker does not meet even one part of the test, the employee is to be treated as an employee and subject to all the protections and eligible for the benefits that employers must provide to employees.
Implications of AB 5 to Various Industries
Not all workers are cheering AB 5, though. Some individuals who engage in professions for which independence from one company is critical. Truck drivers, lawyers, real estate agents, and freelance writers all would potentially be classified as employees of some of the companies for which they work. Yet for these and other professionals, the ability to work for various employers without having to be considered an “employee” of any one of the companies is key to their livelihoods. (Physicians and surgeons have already obtained an exemption from the ABC test.)
Contact Your California Business Law Firm Today
If passed, AB 5 has the potential to affect a number of workers throughout California. For some, this could be a welcome change; for others, the adoption of the ABC test might make their jobs and professional relationships more difficult. For workers and employers alike, the Heit Law Group, P.C. is committed to providing accurate and actionable advice on current and contemplated laws so that workers and employers can both determine the best future course to chart. Speak with the Heit Law Group, P.C. today about your employment-related concerns. We can be reached at (310) 744-5227 or at our website, https://heitlawgroup.com.