New California Law Requiring Changes for Independent Contractors
California is not only one of the largest states in the U.S., but it is also home to many independent contractors. These individuals are hired on a contract basis and do not receive employee benefits such as health insurance, paid time off, and retirement benefits. However, a new California law that went into effect on January 1, 2020, is changing the way independent contractors are classified and treated.
The law, known as AB 5, was signed by Governor Gavin Newsom on September 18, 2019. The bill was designed to codify the California Supreme Court’s Dynamex decision, which established a three-part test for determining whether a worker is an employee or an independent contractor. This new law replaces the old standard, known as the Borello test, that has been in use since 1989.
The three-part test outlined in the new law requires that a worker is considered an employee unless the employer can prove:
1. The worker is free from the employer’s control and direction in the performance of the work, both under the contract for the performance of the work and in fact;
2. The worker performs work that is outside the usual course of the hiring entity’s business; and
3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
The new law has been met with mixed reactions. Supporters say it provides much-needed protections for workers by making sure that they are properly classified and receive benefits such as health insurance and paid time off. Critics argue that it will hurt businesses by making it more expensive to hire independent contractors and forcing them to hire employees instead.
Under AB 5, some independent contractors may be reclassified as employees, while others may still be classified as independent contractors, depending on the specific nature of their work. For example, freelance writers and photographers may still be classified as independent contractors if they meet certain criteria. However, rideshare drivers and food delivery workers are more likely to be classified as employees under the new law.
Businesses that fail to comply with the new law may face penalties for misclassifying workers. According to Labor Commissioner Julie A. Su, “Our enforcement efforts will focus on educating employers on the new law. But if employers are not willing to comply, they will be held accountable.”
In conclusion, the new California law reclassifying independent contractors is a significant change with far-reaching implications for businesses and workers alike. Whether the law will improve conditions for independent contractors or hurt businesses remains to be seen, but it is clear that employers will need to closely examine their employment practices and worker classification in light of this new legislation.