AB 5 Explained
I have been recently named to the Deposition Reporters Association (DRA) AB 5 Task Force. I never dreamt I'd be on a task force for anything. Yet here I am. I guess it's because AB 5 has created a stir in me like nothing else before (politically). As such one of the first tasks I'm working on with some great, like-minded folks is an 'explainer video'. The video will explain -- in simple language and hopefully eye-catching visuals -- what AB 5 is all about. My compatriots on this task are:
Here is a sneak preview of the the AB 5 Explainer script:
What is AB 5?
AB 5 is a new California law effective January 1st, 2020. Its purpose is determining whether a worker may remain an independent contractor or must be an employee.
Previously, California used the Borello test, applying 11 flexible factors to answer one question: Who controlled the worker? The worker themselves or the hiring person?
But in April 2018, a new test emerged from a California Supreme Court ruling called Dynamex (pronounced “dynamics”). This ruling contained an “ABC” test that narrowed the decision to three rigid factors, all of which must be passed:
● (A) the worker is free from the control and direction of the hirer; ● (B) the worker performs work that is outside the usual course of the hiring entity’s business; ● (C) the worker is engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.
The ABC test sent shockwaves through the business community. Why? It severely limited the ability to be an independent contractor or to hire independent contractors.
Many were now worried about failing the ABC test. The “B” factor -- “the worker performs work that is outside the usual course of the hiring entity’s business” – was most troubling. Under Borello, you could satisfy a majority of the conditions. But under ABC, you had to pass all of them. This left many businesses questioning what would be considered a part of their “usual course of business.”
At first, Dynamex applied only to wage orders. But AB 5 expanded the law to affect every worker because it now applied to non-wage order labor code issues as well. Essentially that meant to all wage and hour laws, as well as unemployment and workers’ compensation.
Because AB 5 was problematic, carve-out exemptions were provided for some industries. Doctors, lawyers, manicurists, even commercial fisherman all got exemptions allowing them to remain under Borello. That preserved a bit more freedom in the choice of whether someone was properly classified as an Independent Contractor or employee. However, many others -- like court reporters, captioners, and interpreters -- were not exempted and now fell under the ABC test.
Failing the ABC test may be dire for independent contractors forced to become employees:
● They may lose freedom to set their own schedule, workflow, or work locations.
● They could be denied the right to work for multiple agencies/organizations.
● Higher costs to agencies may mean reduced hours and pay cuts.
● There may be few employee benefits because small businesses cannot afford full-time employees.
● No more state or IRS write-offs.
● The increased costs, forced restructuring, or loss of flexibility may drive agencies out of business.
● It could exacerbate a shortage of captioning and interpreting services for people with hearing loss.
With AB 5 California has potentially eliminated the possibility to use independent contractors whose work can even remotely be defined as in your “usual course of business,” -- and that possibly goes for independent contractors who are formed as legal business entities (LLCs and corporations).
So what can you do right now? Share this video and visit [AB 5 website coming soon]
Don’t wait. AB 5 takes effect January 1st, 2020! The push for an exemption must happen now!
Tuesday, November 05, 2019