There has been an ongoing fight over how to define employees for the past few decades. As technology has re-shaped the workforce, this fight has gotten more intense. State and federal governments have struggled to set clear lines dividing independent contractors from employees for a number of purposes, including taxation and the application of workplace benefits. These benefits and taxes add on average 20% to 30% to the cost of hiring and paying a worker.
Are Workers Employees Or Independent Contractors?
California has long attempted to set the standard for employee friendly states. Now, the state has signed into law the most aggressive measure aimed at ensuring more workers are classified as employees. Known as Assembly Bill 5 or AB-5, the new California law follows a 2018 California Supreme Court decision that established a new test for distinguishing employees from independent contractors. Under that test, independent contractors must be free to perform their work as they wish, must be in a different line of work from the company contracting with them, and must operate their own business.
What Is AB-5?
AB-5 is often described as being directed at “gig” economy workers, especially individuals who drive cars for companies like Lyft or Uber. The bill codifies the 2018 California court ruling and places the burden of proof on employers to show that workers qualify as independent contractors. It also authorizes cities and counties in California to sue employers to enforce the law.
Who Is Exempt From AB-5?
The bill contains a large number of exceptions based primarily on certain professions. Doctors, lawyers, engineers and a long list of other professions are exempt from AB 5. Companies negatively impacted by the law are seeking to lobby the legislature in California to obtain their own exemptions. Some have even floated the idea of ballot measures to do so.
Big Names Are Fighting Big Legal Battles
The law will almost certainly be met with a variety of legal challenges. Uber and Lyft have said they plan to fight the law and continue to believe that their drivers qualify as independent contractors under the law. Others have raised concerns about the effect the law will have on the entertainment industry. The trucking industry in particular has raised concerns about how the law will impact owner-operator relationships. Having said that, employment law relating to trucking at the state law faces unique issues due to federal laws that specifically control in that area.
What The Future Holds For Gig Workers And The Companies That Hire Them?
It remains to be seen if other states will follow California’s lead in making it harder to classify employees as independent contractors. Several states such as Florida and Arizona have already moved in the other direction, passing laws making it clear that gig workers are contractors, not employees. The competing laws and evolving nature of these disputes emphasizes the need for businesses to know the rules in the jurisdictions in which they operate and to ensure that their relationships with their workers are clear cut and categorized accordingly.