California’s Assembly Bill 5 (AB5) is no longer a threatening myth swimming in a murky sea of “what if’s.” The bill has been signed into law, effective January 1, 2020, and it’s real enough to take a bite out of businesses who aren’t prepared to address its implications head on.
If you’ve been on summer vacation, or perhaps not paying attention to the headlines, California companies wishing to hire independent contractors (ICs) must now prove that their ICs can pass all three parts of the ABC test which was borne of the Dynamex decision (see our on-demand webinar on this topic too).
The Dynamex court ruled that the ABC test, not the Borello test, will be used to determine whether or not a worker is an IC. By law, companies must thoroughly document that their ICs:
- Are 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.
- Perform work that is outside the usual course of the hiring entity’s business.
- Are customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
Will AB5 stand the test of time?
We will be scanning the waters of commerce with watchful eyes to see how the bill will be interpreted in the coming months. According to JDSupra.com, “there is a significant gap between what a law dictates and how it is interpreted by the courts.” While the judicial ramifications of AB5 are being sorted out, it’s smart to comply with all parts of the ABC Test if you run a business using the services of ICs in California.
If your company operates outside of California, you may think you have no reason to fear the shore-hugging specter of AB5. However, if your company engages ICs inside the state, even briefly, you may need to take steps to ensure you’re engaging ICs safely now that AB5 is law. TalentWave can help by thoroughly assessing your independent worker population.
What’s the early buzz?
The passage of AB5 has generated quite a bit of excitement in California and beyond. A few items are worth noting:
- San Francisco-based Instacart is being sued by the San Diego city attorney for violating the Core Service or part “B” of the ABC test—the most challenging component of the test for many companies. This case could set a legal precedent.
- AB5 has spurred legislative activities in other states far flung from California who appear to be following California’s lead—including Washington state and New York. New York Mayor Andrew Cuomo says he does not “want to lag behind California” in defining which workers should be classified as employees.1
- Other experts contend the bill won’t affect ICs in more conservative states, but do predict the passage of AB5 could lead to development of a portable benefits package for ICs allowing them to work freely while carrying benefits that offer stability and protection.
Only time will tell how the passage of AB5 will affect independent workers and the companies who engage them across the U.S. Whatever the outcome, we are dedicated to providing you with level-headed thought leadership on the topic as fresh information becomes available.
This article is the first in a four-part series on AB5 introducing TalentWave’s November 6 webinar “AB5: Truths, myths and mysteries. How smart companies can succeed under the new law.” Check back next week when we explore the intricacies of the exceptions or carve-outs to AB5.