New legislation in California set to go into effect in 2020 will prevent many companies from classifying workers as independent contractors. Governor Gavin Newsom recently said he would sign AB5 after the bill passed through the Senate and Assembly. AB5 will have a substantial impact on the gig economy, which is why we answer some of the questions we have been asked about how the bill will work.
Question: When the law takes effect, will Uber and Lyft drivers in California automatically be considered employees?
A: No. While AB5 and Dynamex will make it more difficult for employers to classify workers as independent contractors. Employers will use the “ABC” test to determine if workers are employees. To be classified as an employee, they must:
- Perform tasks under the company’s control
- Perform work that is integral to the company’s business
- Not have independent enterprises in the employer’s trade
Question: What’s the difference between an employee and a contractor?
A: If you are classified as an employee, you have the right to be paid at least minimum wage, as well as other benefits, such as:
- Paid sick leave
- Paid family leave
- Workers’ compensation
- Unemployment insurance
- Expense reimbursement
When it comes to Social Security tax, employers pay half of what their employees owe.
Question: Why are some companies against reclassifying workers as employees?
A: Most companies challenging AB5 want to avoid the cost of paying for employment benefits because it can potentially add 30% to their labor costs.
Question: How is Uber and Lyft Responding to AB5?
A: Rideshare companies and other gig companies will likely argue in court that the bill’s stricter test qualifies their workers as independent contractors. Essentially, these companies won’t budge unless they are forced to do so by a judge.
Question: Who is exempt from AB5?
A: The following professions have certain exemptions under AB5:
- Insurance agents
- Marketing professionals
- Travel agents
- Graphic designers
- Grant writers
- Real estate agents
- Direct sellers
- Commercial fishermen
- Fine artists
- Repossession agents
- Human resources administrators
To speak with an experienced lawyer at Pacific Workers’ Compensation Law Center, call (888) 740-6434 to schedule your free case consultation. We are committed to representing workers, and we are prepared to use our extensive resources to fight for you.