Will a New California Bill AB 5 Change the Way the Gig Economy Works?

Lady Justice

There is a controversial and important legislative battle waging in the country: the battle over California bill AB 5. Labor unions back this bill, and if it passes, it will become even harder for companies to classify their employees as independent contractors. Reclassification would change the gig economy and impact the way many businesses operate.

Currently, businesses of all kinds can label certain employees as “independent contractors,” making them exempt from state and federal labor laws. This has a significant advantage for employers. Misclassifying workers as independent contractors enables companies to skirt labor laws and save millions of dollars in employment costs.

As such, well-known gig companies, like Uber, Lyft, and Instacart, have begun aggressively lobbying against this bill. Since companies like these built their workforce using independent contractors, this bill could radically alter how they do business.

Understanding the ABC Test

The California Bill AB 5 seeks to expand a groundbreaking California Supreme Court decision in 2018 known as Dynamex. This ruling (and AB 5) instructs businesses in California to use the ABC test to determine if a worker is an employee or an independent contractor.

If a worker is:

  1. Free from the company’s control
  2. Doing work that isn’t central to the company’s business
  3. Has an independent business in that industry

Then the state considers that worker an independent contractor. However, if a worker doesn’t meet these three conditions, the state of California considers that worker an employee.

Benefits and Disadvantages of AB 5

In California, the bill passed the state Assembly this summer and is now making its way through the Senate. Popular politicians and 2020 candidates have all weighed in on whether the bill would be good for employees, employers, and the economy. Presidential candidates, Elizabeth Warren, Bernie Sanders, and Kamala Harris all support the bill. They believe that this bill is a step in the right direction to secure better worker protections and benefits.

Opponents of the bill have expressed concern over how these changes would affect the California economy. There has been substantial growth in business in California over the last several years due to new and innovative business models. Many of those businesses rely heavily on independent contractors to function. Classifying workers as employees would cause many of these businesses to struggle, damaging the economy.

Benefits of Being an Employee

If it passes, approximately two million independent contractors across California will become employees. This includes rideshare drivers, manicurists, and even exotic dancers.

While this may not seem like a major change, workers who are classified as an employee, instead of independent contractors, have huge many advantages. These workers would become entitled to labor protections, such as unemployment insurance, health care subsidies, workers’ compensation, paid maternity leave, and overtime pay. It would also mean that they would receive a guaranteed minimum of $12 per hour in pay.

Contact Our California Labor Lawyers

If you have questions about your employment status, believe your employer misclassified you, or are facing an employment dispute, we can help. Call the Law Office of Christopher Baudino by filling out our confidential contact form for more information. Our California labor lawyers have been helping workers in the East Bay, Walnut Creek, Oakland, San Jose, and San Francisco areas for years. We are ready to put our experience and resources to work for you. Call today!

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