The California legislature is setting its sights on limiting employers’ use of independent contractors in the gig economy. A California bill, AB 5, sets to codify the California Supreme Court’s 2018 ruling in Dynamex v. Superior Court. The bill passed the Assembly last week, and will need to be approved by both the Senate and the Governor before taking effect.
The California Supreme Court ruled in Dynamex that in order for a worker to be properly classified as an independent contractor, the company must establish the worker meets the ABC test:
- Part A: Is the worker free from the control and direction of the hiring entity in the performance of the work, both under the contract for the performance of the work and in fact?
- Part B: Does the worker perform work that is outside the usual course of the hiring entity’s business?
- Part C: Is the worker customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity?
The bill currently exempts certain types of workers, such as hairstylists, real estate agents, certain investment advisers, licensed physicians and surgeons, licensed attorneys, dentists, architects, engineers and accountants. However, the bill does not exempt rideshare companies, such as Uber or Lyft.
Employees are provided additional Labor Code rights than independent contractors for items such as minimum wage, meal and rest breaks, and overtime pay. However, independent contractors are permitted more control over their work schedules and how they carry out their duties, which many workers in the gig economy prefer. If independent contractors are required to be reclassified as employees, companies will have more control over when and where the workers perform their duties. There is also concern that if the bill is passed, Uber and Lyft may not be able to operate in California.