An Endangered Species by Newly Enacted “AB 5”
Until April 2018, the 11-factor balancing test in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (California Supreme Court) had long applied to classifying workers as employees or independent contractors.
That court then dramatically changed the rules in Dynamex Operations West, Inc. v. Superior Court. See, Independent Contractor Status in California Now Falls Under Radically Different Rules (June 2018). Now, a hiring company could only treat a worker as independent if the individual met three criteria:
Confusion followed since Dynamex’s “ABC” definition only applied to the reach of state minimum wage, overtime, meal and rest break and other related rules, with the 11 Borello factors remaining for contractor/employee distinction on all other issues, for example workers’ compensation protections and unemployment benefits.
Assembly Bill (AB) 5 — most of which is scheduled to go into effect January 1, 2020 — is state government’s attempt to more uniformly apply the Dynamex “ABC” test, including to work comp and unemployment. Yet, true to the legislative process, the new law is full of available exemptions for certain occupations and industries:
Another possible exemption is a business hiring another business to provide work directly to the hiring business and not to its customers. In suitable circumstances, this may apply to the software industry for example.
Those covered by these exemptions still must meet the Borello factors to claim legitimate independent contractor status.
While many commentators are pointing to the potentially devastating effect of AB 5 on the so-called “gig economy,” the law will also seriously affect many other industries, trucking prominent among them.
Already at work helping companies with implementation, we will be supplementing this overview with additional articles on specific industries or features of the new law.
October 4, 2019Back to Blog
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