In September, California Gov. Gavin Newsom signed Assembly Bill 5 into law. The legislation, which was sponsored by California Assemblywoman Lorena Gonzalez, tightened the state’s gig-worker rule to reclassify many independent contractors as employees.
In his signing statement, Gov. Newsom said that AB5 “will help reduce worker misclassification—workers being wrongly classified as ‘independent contractors’ rather than employees, which erodes basic worker protections like the minimum wage, paid sick days, and health insurance benefits.”
The law was widely perceived as targeting ridesharing companies like Uber and Lyft, which treat drivers as independent contractors instead of employees. This policy has made workers responsible for paying their entire Social Security and Medicare contributions, as well as their own health insurance, retirement plans, and so on. In addition, contractors have not been entitled to unemployment insurance or workers’ compensation.
However, AB5 touches a wide variety of occupations, including truckers, journalists, tech workers and more. And many independent contractors and business groups are protesting that the law will cost workers opportunities, security, even their careers.
The ABC Test for Determining Whether a Worker Is a Contractor
The bill codifies into law a 2018 decision by the California Supreme Court, Dynamex Operations West, Inc. v. Superior Court, which created a stricter test for determining whether a worker is an employee or an independent contractor.
The ABC test says that employers may classify a worker as an independent contractor if:
(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact;
(B) that the worker performs work that is outside the usual course of the hiring entity’s business;
and (C) that the worker is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.
“The second factor is a difficult standard to meet,” said Robert Cooper, an attorney with Buchalter in Los Angeles, speaking with SHRM. “Employers will have to show that the work performed is outside of the usual course of the business. So it would be difficult for a software development company to show that a programmer was properly classified as an independent contractor, but it may be able to show that a plumber is a contractor.”
This would make it more difficult for employers to misclassify workers, but it might also make it more difficult for independent contractors to build their businesses. To use Cooper’s example, a programmer who wanted a full-time job but was forced to accept a contract position would likely welcome AB5, while a programmer who preferred to consult would not.
Exemptions and Exceptions for Certain Occupations
At JD Supra, Jonevin Sabado notes that “AB5 did not survive the lobbying process unscathed,” with more than 50 industries gaining exemptions to the law. These include:
- Physicians and surgeons
- Insurance agents
- Private investigators
- Commercial fisherman
Some occupations have specific exceptions and carve-outs under the law.
“Commercial fishermen are exempt except from unemployment insurance,” write John Myers, Johana Bhuiyan and Margot Roosevelt at The LA Times. “Barbers, cosmetologists and manicurists are exempt only if they set their own rates, are paid directly by clients and schedule their own appointments. Salespeople are exempt, provided their pay is based on actual sales rather than wholesale purchases or referrals.”
Freelance writers, editors and photographers can contribute up to 35 pieces of content per employer, per year, before they would be considered employees.
So, How Do Workers Feel About Ab5?
Opinions are sharply divided.
“Some ride-hail drivers and other gig workers want to be employees; some don’t,” writes Carolyn Said at The San Francisco Chronicle. “Translators, some medical professionals and truck owner-operators seem uniform in their desire to remain freelancers. Among other professions, there’s no clear consensus.”
Add many freelance journalists, writers and editors to the tally of those who oppose the rule.
“Many publications that employ California freelancers aren’t based in the state and it’s not clear how AB 5 will affect them,” writes Katie Kilkenny at The Hollywood Reporter. “Still, some are choosing to opt out entirely. Indeed, several freelance writers who spoke to THR say that various out-of-state employers — some with offices in California — have already told them they’re cutting ties with California freelancers.”
Some freelancers have complained that the 35-piece carve-out was arrived at arbitrarily; freelancers had lobbied for 52, the number of pieces a weekly columnist would write in a year. Gonzalez concedes that the number is “a little arbitrary.”
As for how lawmakers settled on the 35-submission figure, Gonzalez says that she and her team decided that a weekly columnist sounded like a part-time worker and so halved that worker’s yearly submissions. After protest from some freelancers, the number was bumped up to 35. “Was it a little arbitrary? Yeah. Writing bills with numbers like that are a little bit arbitrary,” she says.
Other contractors expressed their desire to remain independent. In November, dozens of truck owner-operators protested outside government offices in cities around California. The San Francisco Chronicle spoke with several, including this owner-operator:
“I don’t want to work under someone else anymore,” said Parmjit Singh of Pittsburg [California], who paid $215,000 two years ago for his 10-wheeler Peterbilt dump truck, capable of hauling 18 tons. “Now if I don’t like (a potential job), I can say no. If it’s in San Jose, I say that’s too far for me. If you’re an employee, you cannot say no.”
On the other hand, for every Uber or Lyft driver who enjoys the flexibility of ride-share driving, there’s another who craves more stability.
“Drivers have lost their homes due to the shrinking pay from Uber and Lyft and can’t find new apartments because landlords don’t think we have stable jobs, this is the world we live in,” says Nicole Moore, a part-time Lyft driver and organizer with Rideshare Drivers United, in an interview with Fortune. “I know two or three drivers who have been living out of their cars. Meanwhile Garrett Camp [the co-founder of Uber] just bought a $72.5 million home.”
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New Jersey’s Version of AB5
New Jersey may be the next state to enact legislation aimed at industries that utilize independent contractors.
New Jersey Senate Bill 4204 will “codify into law existing regulations and close a loophole that has allowed for the misclassification and exploitation of some employees. It’s all about protecting the rights of workers,” according to State Sen. Stephen Sweeney, who sponsored the measure.
In its current form, however, S4204 appears even more restrictive than California’s AB5.
Per JD Supra:
New Jersey bill S4204 will apply to all businesses within the state. In short, the law states that any person who performs a service for remuneration is considered an employee for purposes of all the state’s employment laws, “unless and until it is shown to the satisfaction of the Commissioner of Labor and Workforce Development” that the service provider meets a newly revised ABC test. The bill delegates to the Commissioner of Labor the authority to determine whether a contractor meets the ABC test and is thereby a bona fide independent contractor. Additionally, the bill also revises the ABC test, making it much more difficult for a worker to be considered an independent contractor.
Some contractors and business groups are opposing the measure.
“If forced to switch to full-time employee drivers, the tremendous cost increases will be shifted to shipping customers, who will then pass that burden on to the consumer via higher prices, sharply increasing the cost of living and working in the state of New Jersey,” writes Lisa Yakomin, president of the Association of Bi-State Motor Carriers, in a letter to legislators which she shared with FOX Business.
She adds: “New Jersey already has one of the highest costs of living in America, and is now ranked first in the nation for residents moving out of state. We cannot enact laws that make it even more expensive to live and work here, but S4204 would do exactly that–and our low-income and middle-class residents will feel that squeeze the most.”
The Future of Gig Worker Laws Like Ab5
Meanwhile, in New York, the state senate is considering its own gig-worker legislation. The text of Senate Bill S6699A specifically mentions large employers like Uber, Lyft and Amazon as benefiting from “the current rules that classify workers as independent contractors rather than employees.”
Like California and New Jersey’s bills, New York’s legislation would change the three-part test determining whether a worker is an employee, making it harder for employers to classify them as independent contractors. (Note: S6699A is listed as “in committee” on The New York State Senate website. The final version will likely contain changes from the current text.)
Finally, several candidates for U.S. president have endorsed AB5, which suggests that federal legislation to protect gig workers — or destroy their businesses, depending on your point of view — may not be out of the question.
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