California Governor Gavin Newsom passed a variety of laws in 2019 that will impact employment in 2020. Among the most notable changes are several laws that impact worker classification.
AB 5 amends section 3351 of California Labor Code and sections 606.5 and 621 of California’s Unemployment Insurance Code. Most notable, AB 5 adopts an “ABC” test for classifying independent contractors from employees. The ABC test is based on two Supreme Court cases – Dynamex Operations West, Inc. v. Superior Court of Los Angeles and S.G. Borello & Sons, Inc. v. Department of Industrial Relations.
Under Borello, workers are identified as independent contractors or employees depending on the degree of control by the employer, as well as considerations:
· Does the worker purchase his or her own equipment?
· Does the worker set his or her own hours?
· Does the worker hire additional employees or contractors?
· Does the work relationship consist of contracts for set amounts of work, rather than an indefinite period of work?
Dynamex has been codified under AB 5. Workers are now presumed to be employees rather than independent contractors unless the person who hired them can establish the following:
· The worker is free from control and direction from the employer related to performance.
· The worker performs work outside the employer’s usual course of hiring.
· The worker is engaged in an independently established business, occupation or trade of the same nature as what is being done for the employer.
AB 5 went into effect on January 2, 2020, but employee classification was not automatically changed. Instead, lawmakers are urging employers to assess and reclassify workers as necessary based on the new laws. The new law also provides consequences for employers who fail to appropriately classify or reclassify workers.
The new law allows 50 industry-specific job categories that are exempted from the new law, such as physicians and insurance agents. Workers in these specific categories will continue to fall under Borello, rather than the new codified Dynamex processes.