California Passes Landmark Gig Worker Bill Regulating Use of Independent Contractors

San Francisco, CA (Law Firm Newswire) December 27, 2019 – California Governor Gavin Newsom on September 18 signed into law AB-5, a controversial bill that provides key labor protections to gig economy workers and limits the use of independent contractors by businesses in the state. The law will go into effect on January 1, 2020.

AB-5 is poised to dramatically change the landscape of the gig economy in the state. Hundreds of thousands of California workers will be entitled to basic labor rights and benefits that employees get such as minimum wage, overtime pay, health care subsidies and workers’ compensation. They will also be able to unionize.

“AB-5 clearly disrupts the gig economy as it has existed up until this point,” commented attorney Bryan McCormack of San Francisco-based employment law firm McCormack & Erlich. “For far too long employers have gotten away with taking advantage of workers simply because they could. The new regulations ensure accountability for employers seeking to skirt the law by misclassifying workers in order to boost their profits. Businesses must now provide all workers with the basic employment rights and protections they deserve.”

AB-5 is based on a detailed set of criteria established in a 2018 landmark California Supreme Court ruling known as Dynamex. The court used a so-called ABC test and found that Dynamex misclassified its drivers as independent contractors. AB-5 lays out a more clear and strict standard of proof than the guidelines under federal law.

Under the new bill, businesses are required to apply the ABC test to determine whether a worker is as an employee or an independent contractor. A worker can only be classified as an independent contractor if all three conditions of the test are met. Employers must prove that the worker is not under the company’s control, does work that is not central to the company’s business, and has an established independent business or trade. The law provides exceptions for some jobs like doctors, accountants, travel agents and engineers.

Labor unions have praised Newsom’s decision to sign the AB-5 proposal. However, the bill has faced strong opposition from Uber, Lyft, Instacart and other gig economy companies. AB-5 poses one of the biggest challenges to the state’s app-based technology sector, which uses a profit model that is reliant on independent contractors.

Uber has avoided having to pay minimum wages, overtime and benefits to its drivers by classifying them as independent contractors. The ride-sharing company is unlikely to pass the ABC test and is now fighting back against the prospect of having to reclassify tens of thousands of California drivers as employees. It joined forces with Lyft and DoorDash to launch a $90 million initiative for a 2020 ballot measure seeking an AB-5 exemption for ride-hailing companies.

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