October 2, 2019

California Gig Law to Reclassify Contractors as Employees

California Assembly Bill 5 has been enacted into law, establishing a test to clarify if a worker should be classified as an independent contractor or an employee entitled to benefits such as minimum wage, health insurance, and workers’ comp.

Reflecting sentiments expressed in Dynamex Operations West, Inc. v Superior Court of Los Angeles (2018), a recent California Supreme Court case, the bill codifies the “ABC” test which establishes that a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor, unless the hiring entity demonstrates that all of the following conditions are satisfied:

  • The person is 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
  • The person performs work that is outside the usual course of the hiring entity’s business
  • The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed

This law is expected to reclassify a significant number of gig positions in the state to employee positions, and with this change would come great financial ramifications. The California Department of Industrial Relations claims that employee misclassification was responsible for $7 billion in lost payroll tax revenue to the state.

Some have argued that this law could eviscerate the gig economy as it impacts companies like Uber, Lyft, Postmates, Amazon and DoorDash. But while the impact of this law is expected to be large, it excludes various professions, including physicians and other licensed medical professionals, attorneys, financial planners, brokers and accountants, insurance agents, realtors, hairstylists, freelance writers and even some owner/operator truckers.

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