California Law Aims To Disrupt 'Gig' Economy

September 24, 2019

Early September, 2019, California enacted a bill known as AB 5, despite intense opposition from businesses and aggressive lobbying from gig-worker companies that have relied on classifying their workers as independent contractors. Once AB 5 takes effect, on January 1, 2020, nearly every business operating in California will be required to hire workers as employees, not independent contractors, with few exceptions. Every business who hires workers of any kind in California needs to take prompt action to respond.

The bill seeks to expand labor protections and benefits to all workers, including unemployment insurance, health care subsidies, paid parental leave, overtime pay, workers’ compensation, paid rest breaks, California sick leave, and a guaranteed $12 minimum hourly wage.

AB 5 codifies, clarifies, and expands the landmark California Supreme Court decision, Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903 (Dynamex). Business are instructed to apply the "ABC test" which creates a presumption that every worker will be considered an employee. To hire an independent contractor, businesses must be prepared to prove that the worker: (a) is not under the business' control, (b) is performing tasks other than work that is central to the company’s business, and (c) has an independent business in that industry. Unless this stringent test is met, the worker should be classified as an employee to avoid the risk of fines and litigation.

The bill exempts a number of trades, such as: licensed insurance agents, certain licensed health care professionals, registered securities broker-dealers or investment advisers, direct sales salespersons, real estate licensees, commercial fishermen, workers providing licensed barber or cosmetology services, and others performing work under a contract for professional services, with another business entity, or pursuant to a subcontract in the construction industry.

Gig worker companies have vigorously opposed the law. For example, Lyft, Uber, and DoorDash, have announced that each is prepared to spend $30 million on a ballot initiative to overturn the new law. On the other hand, California labor unions who lobbied for the bill's passage have vowed to resist such an initiative.

Businesses who hire workers in the State of California should take action promptly to ensure that no workers are misclassified. In doubtful cases, most businesses would be well-served to treat workers as employees, and re-classify any independent contractors, except in the clearest cases. Moreover, although AB 5 does not take effect immediately, the Dynamex "ABC test" is already applicable in California.

Lawyers from Taylor English’s Employment and Labor Relations Department in Atlanta, and Litigation Department in California, are available to assist in this process. If you have any questions, please feel free to reach out to Raanon Gal or Billy DeClercq. Raanon can be reached by email at rgal@taylorenglish.com or by phone at 678.336.7214. Billy can be contacted by email at wdeclercq@taylorenglish.com or by phone at 404.640.5924.

Disclaimer – The information in this law alert is for informational purposes only and does not constitute legal advice. No attorney-client relationship has been or will be formed by any communication(s) to, from or with the law alert or author. The opinions expressed are those of the author, and decisions relating to the content belong to the author.

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