Gig worker law: The ABCs of AB5

What's in this new Californian employment law?

Gig worker law: The ABCs of AB5

There are opposing views on California’s new gig worker law, aka Assembly Bill 5 (AB5). On the pro side are Lorena Gonzalez, AB5’s author, who asserts that its goal is “to create new good jobs and a livable, sustainable wage job,” and AB5’s supporters who highlight the benefits and protections the law gives gig workers.

On the opposite side are employers who consider the law a nightmare and gig workers who feel that their freedom and independence are being attacked. Forbes contributors Heidi Lynne Kurter and Matt Spoke have joined this side, saying that the law threatens the $1-trillion US gig economy and is going to fail, respectively.

What is the gig worker law?
The law changes the rules for determining whether workers are employees or independent contractors (ICs). It applies to all Californian workers, except for those in exempt job categories. It primarily targets workers who get temporary work via online hiring platforms such as Uber, Postmates, and Lyft.

AB5 classifies workers using the ABC test, which presumes all workers to be employees unless they satisfy all its conditions. Under the test, workers can only be considered as ICs if they are:

  1. free from the company’s control and direction with regards to the performance of the work
  2. doing work outside the usual course of the company’s business
  3. engaged in an independently established business, trade, or occupation in the same industry

If workers are classified as employees under the test, their employers will be required to give them the benefits and protections mandated by Californian employment laws:

  • Wage orders
    • Minimum wage
    • Minimum amount of annual paid sick leave
    • Time-and-a-half for overtime beyond eight hours per day or 40 hours per week
    • Reimbursement for out-of-pocket expenses incurred on the job
    • Meal and rest breaks
    • Payment for unused vacation time at the end of employment
  • Unemployment insurance
  • Workers’ compensation insurance
  • Paid family leave
  • Short-term disability benefits

AB5 requires employers to use the test for Californian employment law purposes only and not for any other purposes, such as federal tax purposes.

Companies that fail to follow AB5 and misclassify workers as ICs will be subject to administrative review by agencies such as the California Labor Commissioner, Employment Development Department, and Franchise Tax Board, usually on a case-by-case basis. Also, the California attorney general, city attorneys in large cities, and local prosecutors could sue them.

If proven to have misclassified workers as ICs, companies could be required to pay fines, penalties, and back pay and benefits. For instance, Californian law imposes a civil penalty of up to $25,000 per violation on an employer who willfully misclassifies workers, according to Nolo.

Who is exempted from the gig worker law?
To be classified as ICs, workers in exempt categories – except for real estate salespeople and repossessors – must pass the Borello test, a test not as strict as the ABC test and effective even before AB5 was passed. For some types of workers, additional requirements are imposed.

Under the Borello test, the most important consideration is whether the company has control or the right to control the work done and how it is done. Below are the specific factors it considers:

  • Whether the worker is involved in a job or business distinct from that of the company
  • Whether the work is part of the company’s usual business
  • Whether the work is done by a specialist without supervision or under the company’s direction
  • Who provides the equipment and place needed for the work – whether the company or the worker
  • The worker’s financial investment in the necessary equipment
  • The skill required
  • The worker’s opportunity for profit or loss
  • The duration of performing the services
  • The working relationship’s degree of permanence
  • Whether the parties believe they are building an employer-employee relationship
  • The payment method – whether by the job or by time

According to Nolo, workers subject to the Borello test only include accountants; architects and engineers; direct sales salespeople; insurance brokers; lawyers; private investigators; registered securities broker-dealers and investment advisers; dentists, physicians, podiatrists, psychologists, surgeons, and veterinarians.

AB5’s timeline
December 2018 – The gig worker bill was introduced.
Sept. 10, 2019 – The California State Senate approved the bill, with a 29-11 party-line vote.
Sept. 11, 2019 – The California State Assembly approved the bill, with a 56-to-15 vote.
Sept. 18, 2019 – California Gov. Gavin Newsom signed the then bill into law.
Dec. 30, 2019 – Uber and Postmates filed a lawsuit against the state of California over the gig worker law.
Jan. 1, 2020 – The law took effect.
Feb. 10, 2020 – US District Judge Dolly Gee rejected Uber and Postmates’s request to block the enforcement of the law. While Gee recognizes the companies’ claim that the law poses “irreparable harm” for them, she concluded that the enforcement of the law serves the public’s interest. (Source: Bloomberg)

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