Information on California’s AB5 Law

Assembly Bill 5, or AB5, was signed into law in September 2019. It has since made an impact on California’s business and its workforce. AB5 was created to protect the state’s workers from being misclassified as independent contractors. That way, they can receive the protections and benefits of being employees. The law can be confusing, though, so information on California’s AB5 law can be useful.

This bill was originally aimed at companies like Uber and Lyft, which have misclassified their employees, but it has impacted the rest of the business world as well. A California employment attorney understands this and can explain how it applies to your own company.

Defining California’s AB5 Law

An estimated 10-30% of workers were estimated to be misclassified as independent contractors. California employment laws can be confusing, and AB5 is no different. The AB5 law was enacted to better classify employees, which could impact labor rights, benefits, and the employer’s obligation to those employees. It details the ABC test, which replaces the former Borello test in deciding if an independent contractor should be classified as an employee.

The ABC test uses a three-prong standard to decide if someone can be called an independent contractor:

1. Control. The contractor must be free from the control and direction of the hiring entity.
2. Business. The work the contractor does must be outside the company’s usual business.
3. Independent. The contractor must be engaged in this type of work outside the company, whether through their own trade, business, or other occupation.

If the contractor passes this test, then they can be classified as an independent contractor. If not, then they might be classified as an employee. In that case, they could be granted the benefits and rights protections that come with that.

How This Affects Workers and Their Employers

AB5 significantly impacts how employers work. They must now dedicate time and money to make sure their workforce is being classified correctly. They need to scrutinize contracts and job roles to see if they’re in compliance, as any failure to comply could mean legal and financial consequences. Furthermore, if they must classify contractors as employees, then the cost of those employees will rise since the employer must now provide benefits.

For workers, though, AB5 gives them clarification and, in some cases, protection from misclassification. Reclassified employees can receive benefits like health insurance, paid sick time, labor rights, and job security. However, some independent contractors value the independence and flexibility of their jobs and would prefer not to be reclassified.

What Does AB5 Mean for the Construction Industry?

AB5 leaves an exception for construction industry workers who operate under a subcontract, but the subcontractor must:

• Have a contract in writing.
• Be licensed and working within the scope of their license.
• Be licensed and have a business tax registration where the work is taking place.
• Have a business location beyond where they work for the contractor.
• Be allowed to hire and fire people who help them provide their services.
• Assume financial responsibility for their work.
• Be engaged in that same business outside this contract.

All the above criteria must be met. While most subcontractors are exempt, AB5 can cause confusion. If you have any questions at all, Lockhart Law Firm is experienced with construction laws, including the AB5 law. Contact us to see how our Murrieta construction attorneys can serve you.

Hire an Employment Lawyer

If you’d like to know how the law impacts your business, a California employment lawyer can evaluate your situation.

An employment lawyer can provide legal advice for employers who are concerned about employee classification. An attorney can also represent you in an employment case at the Riverside County Courthouse.

If you are an employer who is facing a misclassification claim, a seasoned employment lawyer knows the details of the new legislation. Lockhart Law Firm can provide crucial counsel in any business law matter.

FAQs

Q: What Are the AB5 Rules in California?

A: AB5 defines the criteria for classifying someone as an employee. It uses the “ABC test” to decide if a worker is an independent contractor. The three aspects of this test are:

1. The worker is not under the control of the hiring entity.
2. They are outside the course of the hiring company’s business.
3. They are usually independently contracted.

This test replaces the Borello test and is in place to protect the worker.

Q: What Does AB5 Mean for Owner-Operators?

A: While the law doesn’t ban them, it can be harder for trucking companies to hire owner-operators as independent contractors. Some owner-operators will need to decide if they want to be hired by the trucking company or take on the responsibility of being their own carrier. AB5 only applies to those who pick up cargo in California. It does not affect those who pick it up in another state and carry it across state lines.

Q: What Is the New Law for Independent Contractors in California?

A: AB5 affects how companies can use independent contractors. Most companies must evaluate how their employees and contractors work and in what capacity. That way, they can determine if they are complying with the law, which costs money and time. The law is meant to protect workers, though, giving them access to benefits like health insurance and paid sick leave. This can improve their job security, but it can also be difficult for some independent contractors who value independence and flexibility.

Q: Does AB5 Apply to Out-of-State Workers?

A: In general, the physical location where the work is performed is most important in deciding whether AB5 applies. For a completely out-of-state remote worker who doesn’t travel into California to do their job, AB5 would not apply. If someone is hired out of state, though, and then travels to Los Angeles to work, then the AB5 would apply to them because they are performing their job in California itself. There are some exceptions, though.

Contact Lockhart Law Firm Today

With a focus on business law, our firm is available to help you and your company navigate the AB5 rules. We have years of experience with employment law cases, so we can explain AB5 and how it affects your business.

Contact us today for a consultation.