Assembly Bill 5 Goes Into Effect On January 1, 2020
Assembly Bill 5, which strengthens California’s rules regarding the classification of workers and independent contractors, was signed into law by Governor Newsom on September 18, 2019 and goes into effect on January 1, 2020. AB 5 codifies the California Supreme Court decision Dynamex Operations West, Inc. v. Superior Court of Los Angeles.
The misclassification of employees has been a nationwide problem for years. The U.S. Department of Labor, as well as many states, have taken steps to limit inappropriate misclassification of workers as independent contractors. Workers misclassified as independent contractors are denied worker protections such as minimum wage and overtime. They may also be denied the employer portion of payroll taxes and benefits.
To curtail misclassification, the California legislature adopted AB 5 which codifies Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) which presumes a worker is an employee unless an employer satisfies a three-factor test.
To be considered an independent contractor, the test requires the employer to demonstrate the person:
- Is free from the control and direction of the employer involving the performance of their work
- Performs work that is outside the usual business of the employer, and
- Is customarily engaged in an independent trade, occupation, or business
AB 5 has been opposed by companies that typically treat workers as independent contractors instead of employees, claiming that it would hurt people who make a living doing gig work in the new economy. The impact of AB 5 is not limited to gig workers, so any employer in California that classifies workers as independent contractors should review their classification procedures before January 1, 2020.