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California Assembly Bill 5 or AB 5 is a California law which limits the use of classifying workers as independent contractors rather than employees by companies in the state. Employees are entitled to greater labor protections, such as minimum wage laws, sick leave, and unemployment and workers' compensation benefits, which do not apply to independent contractors.[1] Concerns over employee misclassification, especially in the gig economy, drove support for the bill.

California Assembly Bill 5 (2019)
Seal of California.svg
California State Legislature
Full nameAn act to amend Section 3351 of, and to add Section 2750.3 to, the Labor Code, and to amend Sections 606.5 and 621 of the Unemployment Insurance Code, relating to employment, and making an appropriation therefor
StatusApproved
Introduced2018-12-03
Assembly voted2019-09-11 (56-15)
Senate voted2019-09-10 (29-11)
Signed into law2019-09-18
GovernorGovernor Gavin Newsom
CodeLabor Code and Unemployment Insurance Code
Section3351, 2750.3, 606.5, 621
ResolutionAB 5
WebsiteFull text of the bill

It was introduced by California assemblywoman Lorena Gonzalez[2] and endorsed by Governor Gavin Newsom.[3] It was approved by the California State Senate 29-11 on a party-line vote, by the Assembly by 56-15, and signed by Governor Gavin Newsom in September 2019.[4][1] It will take effect January 1, 2020.[5]

The law codifies a stricter set of requirements laid out in a California Supreme Court decision regarding the classification of employees. The bill was supported by many labor leaders, unions, rideshare driver groups, and state Democrats. It was opposed by state Republicans, the California Chamber of Commerce, and gig economy companies Uber, Lyft, and DoorDash, which pledged to spend $30 million each on a 2020 ballot initiative to reverse AB 5.[6] After its passage in the legislature, Uber and Lyft both said they planned to keep drivers classified as contractors, saying they could pass the stricter test.[7][8]

Provisions and historyEdit

On April 30, 2018, the Supreme Court of California ruled in Dynamex Operations West Inc. v. Superior Court of Los Angeles to impose stricter requirements for employee classification. It created a 3-part test to determine whether an employee could be classified as a contractor rather than an employee, commonly known as the "ABC" test, replacing a previous 11-point standard set in 1989 (the Borello test).[9][10]

The proposed bill, introduced in December 2018, codifies the ruling[11] and puts the burden of proof on employers to satisfy the three part-test that must be satisfied for a worker to be classified as an independent contractor:[12][13]

  1. if the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact
  2. if the worker performs work that is outside the usual course of the hiring entity's business
  3. if the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity

All three conditions must be met.

The law also gives cities in the state the right to sue companies for violating the law, where previously they could not. The California Attorney General's office and local prosecutors can also sue companies.[5]

Proponents of the bill said it would give workers previously classified as contractors minimum wage, overtime, sick leave, unemployment and other benefits, and prevent the state from losing $8 billion from payroll taxes that independent contractors and companies who use them do not pay and social benefits required due to lower pay. Opponents said it would increase labor costs by up to 30%, create higher costs for customers and reduced service, and reduce flexibility for workers.[14][15][16]

After discussions and amendments to the law, which primarily included exceptions for certain professions, the bill first passed the Assembly in May 2019. In August 2019, as the bill neared passage, gig economy companies Uber and Lyft also proposed a negotiated $21 minimum wage but to keep employees as independent contractors as an exception.[17] The proposals were not accepted by the legislature. Other amendments and exceptions were made, primarily to exclude particular professions. The bill drew national attention, including the support of multiple 2020 presidential candidates.[18]

After its final passage in the legislature, on September 11, 2019, Uber and Lyft both said they had no plans to reclassify workers as employees, with Uber's Chief Legal Officer Tony West saying "Just because the test is hard doesn’t mean we won’t be able to pass it. We continue to believe that drivers are properly classified as independent."[19]

ExceptionsEdit

Some professions are exempt from AB 5, including doctors, dentists, psychologists, insurance agents, stockbrokers, lawyers, accountants, engineers, and real estate agents, as they are seen to generally directly work with and set their prices to customers. Newspaper delivery workers will be given an extra year before compliance.[20][21]

Comparison with other jurisdictionsEdit

In 2016, Arizona passed HB 2652, which would classify many gig economy workers, including drivers in ridesharing services, as independent contractors.[22][23]

In 2018, Florida, Kentucky, Indiana, Iowa, and Tennesse passed laws defining specific on-demand economy workers as a "marketplace contractor" and classify them as independent contractors.[24][25]

In 2019, Arkansas passed HB 1850, which codified a different 20-part test, used by the IRS, to classify workers as independent contractors.

ReferencesEdit

  1. ^ a b "Newsom signs bill rewriting California employment law, limiting use of independent contractors". Los Angeles Times. 2019-09-18. Retrieved 2019-09-18.
  2. ^ "California passes landmark gig economy workers' rights bill". The Guardian. 11 September 2019. Retrieved 11 September 2019.
  3. ^ "Gig Workers Win in California". Gizmodo. 11 September 2019. Retrieved 11 September 2019.
  4. ^ "California Passes Landmark Bill to Remake Gig Economy". The New York Times. 11 September 2019. Retrieved 11 September 2019.
  5. ^ a b Said, Carolyn (2019-09-16). "AB5 gig work bill: All your questions answered". San Francisco Chronicle. Retrieved 2019-09-18.
  6. ^ Conger, Kate (2019-08-29). "Uber, Lyft and DoorDash Pledge $90 Million to Fight Driver Legislation in California". The New York Times. ISSN 0362-4331. Retrieved 2019-09-12.
  7. ^ Business, Sara Ashley O'Brien, CNN. "Uber claims new California law still won't force it to classify drivers as employees". CNN. Retrieved 2019-09-12.
  8. ^ Ghaffary, Shirin (2019-09-11). "Uber and Lyft say they don't plan to reclassify their drivers as employees". Vox. Retrieved 2019-09-12.
  9. ^ "Sweeping bill rewriting California employment law sent to Gov. Newsom". Los Angeles Times. 2019-09-11. Retrieved 2019-09-12.
  10. ^ "The Dynamex Decision: The California Supreme Court Restricts Use of Independent Contractors". Labor & Employment Law Blog. 2018-05-01. Retrieved 2019-09-13.
  11. ^ "California Senate passes bill to tighten 'gig' worker rule". Reuters. 11 September 2019. Retrieved 11 September 2019.
  12. ^ "California's controversial labor bill has passed. Experts forecast more worker rights, higher prices for services". USA Today. 10 September 2019. Retrieved 11 September 2019.
  13. ^ "How to Operate in California with Independent Contractors After AB5 Bill Is Signed Into Law". JD Supra. 11 September 2019. Retrieved 11 September 2019.
  14. ^ "California legislature passes AB5 gig-work bill, which could turn contractors into employees - SFChronicle.com". www.sfchronicle.com. 2019-09-11. Retrieved 2019-09-12.
  15. ^ Canon, Gabrielle. "Why some on-demand drivers are fighting for — or against — California's gig economy bill". USA TODAY. Retrieved 2019-09-12.
  16. ^ "Some sectors warn that AB5 could hurt workers, raise prices - SFChronicle.com". www.sfchronicle.com. 2019-09-05. Retrieved 2019-09-12.
  17. ^ "Uber, Lyft propose $21 an hour minimum wage for drivers in California, but there's a catch". NBC News. Retrieved 2019-09-12.
  18. ^ "California Senate passes bill to tighten 'gig' worker rule". Reuters. 2019-09-12. Retrieved 2019-09-12.
  19. ^ "Uber defiant as gig workers on verge of becoming employees under AB 5". The Mercury News. 2019-09-11. Retrieved 2019-09-12.
  20. ^ "California legislature passes AB5 gig-work bill, which could turn contractors into employees - SFChronicle.com". www.sfchronicle.com. 2019-09-11. Retrieved 2019-09-12.
  21. ^ "Sweeping bill on independent contractors passes California state Senate". Los Angeles Times. 2019-09-11. Retrieved 2019-09-12.
  22. ^ "Arizona HB2652 | 2018 | Fifty-third Legislature 2nd Regular". LegiScan. Retrieved 2019-09-13.
  23. ^ "Arizona Legislature Responds to Independent-Contractor Debate". SHRM. 2016-08-12. Retrieved 2019-09-13.
  24. ^ Patrick Coate and Laura Kersey (2019-07-09). "Nontraditional Work Arrangements and the Gig Economy". www.ncci.com. Archived from the original on 2019-09-13. Retrieved 2019-09-13.
  25. ^ Kessler, Sarah. "Handy is quietly lobbying state lawmakers to declare its workers aren't employees". Quartz at Work. Retrieved 2019-09-13.

External linksEdit