AB-5 Signed into Law: But What Happens Next?

AB-5 Signed into Law: But What Happens Next?

California’s Assembly Bill 5 (AB-5) took effect on January 1, 2020. The bill is an effort to curtail the hiring of independent contractors that leaves many workers without the stability that comes with employee status—healthcare benefits, a retirement account and accrued vacation time.

AB-5 is an effort to force companies to hire their contractors as employees with benefits

Assembly Bill 5 is designed to cut down on the number of contractors in the workforce, known as the gig economy. The gig economy is based on short-term engagements, temporary contracts and independent contracting. A total of 36% of workers, or 57 million Americans, now work in the gig economy, which means they’re missing out on employee benefits.

The law implements a California Supreme Court decision that imposes a three-pronged test to identify those workers who are still free to be contract workers and those who must be a hired as employees.

  • A worker can be an independent contractor only if he or she is free from the control and direction of the hirer
  • A worker must perform work that falls outside the usual course of the hiring entity’s business.

Under the requirement, janitors could work as independent contractors only when they have contracts with companies not in the business of cleaning. Companies that outsource their cleaning or janitorial services would be exempt from the law. Or a rideshare driver could work under a contract with Uber or Lyft only if those companies were primarily in the business of, say, selling vacuum cleaners.

It’s a rigid framework, says labor law firm Fisher Phillips, that will appear, in “the nightmares of your average gig economy business executives.”

Contractors are starting the New Year with a lot of uncertainty

Many contractors and freelancers choose to work as contractors for a wide range of reasons. Says one Uber-driving mom, “I have to pick my kids up or drop them off. I do that and come back to work, which is driving. What shift or employer is going to let me do that other than this?”

Creating pathways to form (stronger) unions

Yet Gov. Newsom’s next step “is creating pathways for more workers to form a union, collectively bargain to earn more, and have a stronger voice at work.” Newsom’s plan includes persuading political, labor, and business leaders to support an effort in which “workers excluded from the National Labor Relations Act” would have “the right to organize and collectively bargain.”

Unions have done a lot that is right

A lot of courageous people struggled and died so that we could have a 40-hour work week, safe working conditions and benefits. We’ve watched as those benefits have continued to dwindle.

Yet AB-5 may hurt many part-time workers

  • Seniors who may be picking up contract jobs to supplement their social security incomes.
  • Churches with declining congregations that can’t afford full-time staff.
  • Seasonal businesses and others who rely on part-time workers in the off-season.

Opponents believe that AB-5 will rob workers of the freedom and flexibility they want and often need from freelance work. For thousands of workers, freelancing work is attractive for its flexibility. Workers may have a spouse or partner with a full-time job, and they’re the ones who need the flex time to care for the kids while continuing to have careers.

Independent contractors may not feel exploited

According to The Los Angeles Times columnist George Skelton, “there are tens of thousands of independent contractors who apparently don’t feel the slightest bit exploited. And they don’t want anything to do with formal employment or unions.” On the other hand, many employees who wish they had protections such as unemployment insurance and overtime pay may appreciate the new protections.

There are some exemptions from AB-5

Prior to its passage, AB-5 was the subject of major lobbying efforts on both sides of the issue. The result is that more than 50 professions or types of businesses are exempt from the bill. Exemptions include doctors, dentists, insurance agents, lawyers, real estate agents, hairstylists, and a variety of creative professionals.

AB5 also exempts business-to-business contractors who meet 12 specific requirements and referral agencies that meet ten specific requirements.

The “exemptions” and their consequences

The bill will make it illegal for contractors who reside in California to create more than 35 pieces of content in a year for a single company, unless the outlet hires them as employees. A nonprofit legal foundation is suing California on behalf of freelance workers who say that AB-5 will destroy their livelihoods. Thousands of California female freelancer writers, single moms and minorities stand to lose their livelihoods due to this bill,” said one freelance writer. “I was told by a client that because I live in California they can’t use me.” They’re blackballing California writers. For those who are competing for national writing gigs, AB-5 is a direct threat to their income.

What’s next for AB-5?

We can likely expect to see some lengthy legal battles over enforcement. AB-5 enables the California attorney general, city attorneys and local prosecutors to sue companies over violations. Large companies with deep pockets (Uber and Lyft, where this whole thing started) would likely fight their cases for years.  There’s a lot at stake when people’s jobs are on the line. Expect years of lobbying efforts for industry-related exemptions at the legislative level.

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