California businesses will soon face more regulation in their use of independent contractors under a new law signed by Gov. Gavin Newsom on 9/18/19. While labor organizations have praised this decision, companies fear litigation and loss of income.
The new law extends wage and benefit protections to millions of workers and is aimed primarily at drivers contracted by ride-hailing companies such as Uber and Lyft. Nevertheless, the new regulations will affect companies in every industry that uses independent contractors, including health care, trucking and entertainment.
According to Newsom, Assembly Bill 5 is designed to:
“help reduce worker misclassification — workers being wrongly classified as ‘independent contractors’ rather than employees, which erodes basic worker protections like the minimum wage, paid sick days and health insurance benefits.”
AB 5 will take effect Jan. 1, 2020 and will consider all Californians to be employees of a business unless an employer can prove otherwise. In order to classify a worker as an independent contractor, the business must show that the worker meets the appropriate criteria, previously established by last year’s Supreme Court ruling in Dynamex Operations West Inc. v. The Superior Court of Los Angeles County.
If a business wishes to prove that a worker is not an employee, the business must demonstrate all of the following:
- The person is free from control and direction of the hiring entity in connection with the performance of the work
- The person performs work outside the usual course of the hiring entity’s business
- The person has established an independent trade or business.
According to Newsweek, one in 10 Californians work as independent contractors for a gig-based job. Based on a study by the Public Religion Research Institute, 48% percent of these workers live below the poverty line. Newsom has been fighting against this reality since swearing in as governor earlier this year.
In a statement released to ABC10 News, Newsom wrote:
"The hollowing out of our middle class has been 40 years in the making, and the need to create lasting economic security for our workforce demands action. Assembly Bill 5 is an important step. A next step is creating pathways for more workers to form a union, collectively bargain to earn more and have a stronger voice at work."
For full text of the bill, see: AB-5 Worker status: employees and independent contractors.
For a free consultation to discuss how the new law impacts you, call Feldman Browne, APC at (310) 984-1415.