November 8, 2019
California Assembly Bill 5 is a new law that limits company use of contractors to perform core business tasks. The idea is to force employers to classify their workers as employees so that the workers can receive employee benefits. AB 5 states that workers can only be classified as contractors if their work falls outside of the company’s core/usual business, and if the company does not control over how they perform their tasks. This law was mostly created in response to ride-share applications like Uber and Lyft classifying their millions of drivers as independent contractors rather than employees.
For example, a construction company can hire an independent contractor to create a logo for them. Graphic design falls outside of the construction company’s normal flow of business, and the construction company will not put a graphic designer through training or quality checks. Conversely, if that same construction company wants to hire a crane operator that they train based on company policy and procedure, that person will have to be classified as an employee.
Responses on this AB 5 (which will go into effect on Jan 1, 2020) are mixed. On one hand, it is noble for California legislators to take bold strides in the spirit of protecting their workforce. On the other hand, it may force gig-based companies to shut down their gig workforce, which would put millions of Californians who rely on freelance work both as supplemental and primary income out of work. Gig companies have two choices here: either onboard their freelance workforce as employees, or let the freelance workforce go. Many California freelancers are terrified that they will not be able to convert their working status from freelancer to employee before the law goes into affect their employment will be terminated.
There are some industries like real estate that are exempt from AB 5, but most gig-based companies will be affected. We look forward to seeing how the implementation of this law actually plays out.
