As much as app-based gig-work companies have disrupted the world of commerce, California’s AB5 has disrupted the very definition of gig work. There are ramifications for employers and their Workers’ Compensation policies. Because of AB5, compensation to individuals heretofore considered contractors is often added to the total payroll for computing Workers’ Compensation premium.
The A-B-C test is the new guide for employment determination, and item B is the biggest challenge for claiming independent contractor status. What B says is if your contractor is part of your service delivery to your client, that person is most likely an employee.
This B-Test is an obvious game-changer for companies such as Uber, Lyft and Doordash, but its unintended consequences have affected many other businesses. Athletic trainers that work for multiple clubs, independent journalists that provide content for multiple publications, musicians that perform at events or festivals—all are now employees under this new law.
The purpose of this article is to provide some general information and advice on the subject of the employment status of independent contractors.
This link will take you to the text of the bill, known as AB5.
Here is the pertinent extract:
(a) (1) For purposes of the provisions of this code and the Unemployment Insurance Code, and for the wage orders of the Industrial Welfare Commission, a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied:
- The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
- The person performs work that is outside the usual course of the hiring entity’s business.
(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
Item B is the tripwire that turns contractors into employees. The relationship can meet all other tests, but this is the critical one that changes everything.
This link will take you to the California EDD discussion, “Employment Determination Guide.”
This link will take you to the California Department of Industrial Relations website for a Q&A entitled “Independent Contractor Versus Employee.”
For those of you who are members of the CalChamber, this links you to a very comprehensive discussion of the Independent Contractor issue.
This link takes you to a publication by Hopkins & Carley, a San Jose law firm that specializes in employment law.
Here is a link to workers’ compensation carrier information to clarify the issue of compensation for premium calculation from The State Fund.
As the months roll by, there will be amendments to the law to exempt some micro-occupations from the effects of AB5. The big guys in the space, Uber and others, are experimenting with different iterations of their service, and are challenging the law legally, likely to be a long and arduous process. We think California employers must prepare to live with this new reality.
If you have questions about how AB5 applies to you, call your Archway broker for a discussion of your unique situation.