CALIFORNIA AB 5 - What Does It Mean for Your Business?

CALIFORNIA AB 5

It’s likely you’ve heard about California AB 5. This new law does not apply to only Uber and Lyft drivers and other “gig economy” workers. AB 5 will impact California companies across all industries that use independent contractors. 

WHAT IS AB 5

AB 5 is effective January 1, 2020 and will make it harder for many companies in California to use independent contractors. Under this new law, it is assumed that workers are employees (and not independent contractors). Thus, a company will have the burden to demonstrate the worker is, in fact, an independent contractor under the following test:

• A – the worker is free from control and direction in the performance of services; and
• B – the worker is performing work outside the usual course of the business of the company; and
• C – the worker is customarily engaged in an independently established trade, occupation, or business.

For the worker to be an independent contractor, all three elements must be met. Otherwise, the worker is viewed as an employee of the company. Element B will likely be the hardest for many companies to meet. If all three of the above elements cannot be met, then the worker must be treated as an employee of the company and not an independent contractor.

WHY DOES AB 5 MATTER

Many California wage and hour rules apply to employees, but do not apply to independent contractors. If you are treating a worker as an independent contractor when that worker is actually an “employee,” there will be consequences for having “misclassified” the worker as an independent contractor. The “misclassified” independent contractor/worker may be entitled to additional wage payments and compensation for benefits (e.g., retirement, health insurance) that should have been provided. Your company could be liable for additional penalties as well.

WHAT DO YOU NEED TO DO

If you need help staffing your business in a way that provides you with flexibility while still complying with AB 5, and you manage a business in Turlock, Ceres, Hughson, Atwater, Merced, Vernalis, Patterson, or surrounding areas in Central California, please feel free to call me at 209-618-5040 or to email me at [email protected].