What is California Assembly Bill 5 (AB5) and why is affecting several colleagues in California and soon, other US states; as the controversy surrounding AB5 continues, gig workers and companies that hire them in other states should pay close attention to the bill’s reception. The state of Illinois has already passed legislation that mirrors the guidelines established by AB5. In the state of New York, plans are in the works to introduce legislation that would protect gig workers on a similar scale. If the trend continues to spread, it could create widespread disruption within the gig economy; this of course also affects the people who works with agencies and translators. Is there any solution? Gig work will be affected?
California Assembly Bill 5 (AB5) or “gig worker bill,” is a piece of legislation signed into law by Governor Newsom in September 2019 in effect now. Essentially, requires companies that hire independent contractors to reclassify them as employees, with a few exceptions. The reclassification of a gig worker as a company employee may bring significant benefits, but it could also result in a loss of flexibility in regards to working hours. The other important point is that AB5 is designed to regulate companies that hire gig workers in large numbers.
What Is the Gig Economy?
In a gig economy, temporary, flexible jobs are commonplace and companies tend toward hiring independent contractors and freelancers instead of full-time employees. A gig economy undermines the traditional economy of full-time workers who rarely change positions and instead focus on a lifetime career.
Advantages and Disadvantages of AB5 for Companies
The signing of California AB5 into law affects many, but not all, businesses that rely on gig workers in California. More than 50 professions and types of businesses are exempt, including insurance agents, attorneys, real estate agents, and certain types of business-to-business contractors and referral agencies. Companies that are not exempt will have to take a closer look at how they classify employees and independent contractors to ensure that they are not violating the terms of the bill.
The law requires that a strict new ABC test be used to determine whether many California workers are employees or ICs for purposes of California employment laws, including those requiring minimum wage, overtime pay, unemployment insurance, workers’ compensation insurance, and paid family leave. Many more workers will have to be classified as employees under the ABC test than under prior law. Workers must pass Borello Test, the test in effect before AB5 was enacted. Additional requirements are imposed for some types of workers as described below. But, it should be much easier for these workers to qualify as ICs than under the ABC test.
Except for real estate salespeople and re-possessors, workers in all the exempt categories must pass the Borello test to be classified as ICs. The test is similar to the right of control test used by the IRS. It is not nearly as strict as the ABC test. Under this test, the most significant factor is whether the hiring firm has control or the right to control the worker, both as to the work done and the manner and means in which it is performed. In addition, the following factors are to be considered:
1) Whether the worker is engaged in an occupation or business that is distinct from that of the hiring firm.
2) Whether the work is part of the hiring firm's regular business.
3) Whether the hiring firm or the worker supplies the equipment, tools, and the place for the person doing the work.
4) The worker’s financial investment in the equipment or materials required to perform the work.
5) The skill required in the particular occupation.
6) The kind of occupation—whether, in the locality, the work is usually done under the hiring firm's direction or by a specialist without supervision.
7) The worker’s opportunity for profit or loss depending on his or her own managerial skill.
8) How long the services are to be performed.
9) The degree of permanence of the working relationship.
10) The payment method, whether by time or by the job.
11) Whether the parties believe they are creating an employer/employee relationship.
12) No single factor in the Borello test is determinative, the first one—whether the individual’s work is the service or product that is the company’s primary business—is given the most weight.