Signed by Governor Gavin Newsom in September 2019, AB5 was scheduled to go into effect beginning January 1, 2020. California Legislation replaced the former Borello test that determined whether an individual should be classified as an employee or independent contractor with the “ABC” test decided in Dynamex. The “ABC” test considers the following:
- The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
- The person performs work that is outside the usual course of the hiring entity’s business.
- The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
In a nutshell, the “ABC” tests state if an employee is performing a task that is the core of the company’s business, then that person is considered an employee. Thus, making most individuals employees. But what does this mean for businesses? The answer is classifying a worker as an employee as opposed to an independent contractor means you are eligible for benefits such as workers’ compensation, overtime pay, the ability to unionize, paid leave, healthcare coverage, and many others.
Recently, AB5 has posed potential issues for web-based applications such as Uber, Lyft, Doordash, Postmates, and Instacart who have even threatened to stop providing services in California. Many of these applications claim that altering employment classification will ultimately be disastrous to their business models. Studies even show that the prices of these services will rise by a minimum of thirty percent in response. These apps argued that most drivers only work part-time to supplement the additional income from other jobs and do not need these types of employment benefits. They have also spent millions of dollars pushing the state legislation of Proposition 22.
Proposition 22
Officially known as the App-Based Drivers as Contractors Labor Policies Initiative, Proposition 22 will be on the ballot on November 3, 2020. Proposition 22 creates an exemption for app-based transportation and delivery companies to classify their drivers as independent contractors as opposed to employees. Sources say that Uber, Lyft, and various other app-based companies contributed over 100 million dollars to pass the law in November. Ultimately, app-based drivers will have a permanent classification come November.
