Independent Contractor/Employee Misclassification
Independent contractor agreements, misclassification and employer obligations to get this right have been continuing issues in California. As a result of the uncertainty as to who can be classified as an independent contractor versus an employee, California enacted AB5 which became effective on January 1, 2020.
We have expertise to provide employers, employees and independent contractors advice and guidance on the changing landscape in this area of employment law.
What is AB5?
AB5, codified what is referred to as the ABC Test for employee status adopted by the California Supreme Court in its 2018 decision in Dynamex Operations West, Inc. v. Superior Court (“Dynamex”). It basically gutted the ability of an employer to hire individuals as independent contractors rather than as employees.
In Dynamex, the California Supreme Court stated that independent contractor status can be upheld if: (a) the worker is free from control and direction of the hiring entity in connection with performing the work, both under contract and law; (b) the worker performs work outside the usual course of the hiring entity’s business; and (c) the worker customarily engages in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.
In AB5, the California legislature enacted into statutory law the Dynamex decision by making the ABC Test the default test for all California Labor Code, Unemployment Insurance code, and Wage Order claims. AB5 also provides broad governmental enforcement powers.
AB5 also has numerous statutory exemptions from the ABC Test. Provided certain criteria were met, the employment status of independent contractors in certain occupations covered by these exemptions could be determined by a different test, called the Borello test, which was more flexible then the ABC Test. Given the controversy over some industries being exempted while others were not, the California legislature enacted AB2257, which takes effect immediately.
The exemptions from AB 5 include the following:
For example, musicians, fine artists, freelance writers, photographers, and translators will be among those getting exemptions from AB5 to continue working as independent contractors rather than as employees.
AB2257 does not include certain industries as gig economy companies (as Uber and Lyft), franchising, trucking and the motion picture and television industries.
The law may change since lobbying efforts on behalf of some industries continue and there is a ballot initiative to create a new class of workers applicable to drivers. There are also currently pending lawsuits.
We are available to provide advice and counsel on this changing area of the law, whether you are an employer, an employee or an independent contractor.