Recently enacted California Assembly Bill 5 (“AB-5”) is a game changer for businesses that use independent contractors in California — and a warning shot for employers nationwide. Subject to exemptions for certain occupations and professions, AB-5 imposes a strict “ABC” test that appears to put a thumb on the scale of classifying workers as employees rather than independent contractors.
The ABC test was adopted last year by the California Supreme Court in its Dynamex decision to determine classification of workers for purposes of the state’s Industrial Welfare Commission Wage Orders. For 20 years before Dynamex, worker classification was governed by the more relaxed “Borello” multi-factor test, which focuses on the hirer’s right to control an individual’s work and other secondary factors. AB-5 now makes the ABC test the default standard for determining worker classification — not just under the Wage Orders, but also for all California Labor Code, unemployment insurance, and workers’ compensation claims.
As a result of the passage of AB-5, companies that hire consultants or contractors based in California should take a hard look at those relationships and determine whether they need to reclassify any such individuals as employees. For other companies, this legislation should be monitored as the potential tip of an iceberg of a trend in many states, and potentially nationwide, toward imposing additional hurdles in classifying workers as independent contractors.Continue Reading Hiring Employees vs. Independent Contractors: Navigating Classification Issues in a Drastically Altered California Legislative Landscape