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CALIFORNIA ASSEMBLY BILL 5 (AB5) - EMPLOYEES AND INDEPENDENT CONTRACTORS

Editors: Hanna Chau Nguyen, Cuong Nguyen

In the end of the year 2019, the California Assembly Bill (AB5), also known as the “gig worker bill”, is signed by Governor Gavin Newsom. This new bill is scheduled to go on effect on January 1, 2020. It requires companies that hire independent contractors to reclassify them as employees with some exceptions.


How do companies classify workers as employees or independent contractors?

To determine a worker’s employment status, a company must use a three-pronged test. It also called the “ABC test”. This test assumes that worker is an employee unless the company where the employee is hired can prove the following three things:

  • (A) The worker is free to perform services without the control or direction of the company.

  • (B) The worker is performing work tasks that are outside the usual course of the company’s business activities.

  • (C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

If the worker does not meet all three requirements, he/she must be classified as an employee.


What are advantages and disadvantages of AB5 for workers and companies?

- For workers

  • Advantages: workers will be entitled to a minimum wage, expense reimbursement, employee benefits, rest breaks, pay sick leave, and other benefits that are required under California state law.

  • Disadvantages: workers must perform their work under supervision of the company and lose flexibility.

- For companies

  • Advantages: More than 50 professions and types of businesses are exempt, including insurance agents, attorneys, real estate agents, and certain types of business-to-business contractors and referral agencies. Companies that are not exempt will have to take a closer look at how they classify employees and independent contractors to ensure that they’re not violating the terms of the bill.

  • Disadvantages: the transition cost of reclassifying gig workers as employees is one thing that companies would have to put on consideration. If companies now must pay a minimum wage, offer paid time off and health insurance, and pay unemployment insurance and worker’s compensation benefits for this new crop of employees, that could have a significant impact on the bottom line.

Under this bill, approximately would apply to 64 percent of workers who are independent contractors such as truck drivers, taxi drivers, janitors, cleaners, childcare workers, etc.

In conclusion, most individuals who are independent contractors in their main jobs are in occupations that will be covered by the ABC test. The typically high-paying occupations that were excluded from the test account for a small share of independent contractors.


If you have any question about AB5 and how it affects your work , you can email us through our website cnproservices.com.

References

· Canon, Gabrielle. Sep 11, 2019. “California’s controversial labor bill has passed the Senate. Experts forecast more worker rights, higher prices for services.” Retrieved from

https://www.usatoday.com/story/news/politics/2019/09/10/what-californias-ab-5-means-apps-like-uber-lyft/2278936001/?fbclid=IwAR1VGNgbXoIbs0d6SkQYQAV81B2aPspziGbAsBuDqLVWx8B25Oc22DAQwPM

· Lake, Rebecca. Oct 18, 2019. “California Assemble Bill 5 (AB5)”. Retrieved from

https://www.investopedia.com/california-assembly-bill-5-ab5-4773201

· Sarah Thomason, Ken Jacobs, Sharon Jan. November 2019. “Estimating the Coverage of California’s New AB5 Law”. Retrieved from

http://laborcenter.berkeley.edu/wp-content/uploads/2019/11/Estimating-the-Coverage-of-Californias-New-AB-5-Law.pdf?fbclid=IwAR0ww8P6oArgVqK4XrQdHflVMx6ZKEe5ap7mOfpP_UN0-Hn7fgTIhMt5Q94

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