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Does AB5 Affect Your Business?

As many have heard, on September 18, 2019, Governor Newsom signed AB5, effective January 1, 2020.  The new law codifies the “ABC test” from the California Supreme Court decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, 4 Cal. 5th 903 (2018).  Under the ABC test, any person providing labor or services for remuneration shall presumptively be considered an employee rather than an independent contractor unless the hiring entity demonstrates compliance with all three of the ABC factors:

(A) 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.

(B) The person performs work that is outside the usual course of the hiring entity’s business.

(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Currently, the application of the ABC test may be confusing to companies because, before January 1, 2020, it applied only to those Labor Code provisions that are addressed by the Industrial Welfare Commission Wage Orders.  As of January 1, 2020, the ABC test applies to the entirety of the Labor Code and the Unemployment Insurance Code.  The new law comes with several exemptions for certain types of professions, such as licensed lawyers, architects, engineers, private investigators, and accountants.  There are other exemptions, which are not as black and white, such those providing marketing services, writers, and editors.  It is a good idea to always review your hiring practices to make sure you are legally compliant.

If you have any further questions, don’t hesitate to contact us.