New California Employment Bill on Independent Contractors Signed Into Law

With the stroke of Gov. Gavin Newsom’s pen, the sweeping California employment law limiting businesses’ use of independent contractors has become law and will go into effect Jan. 1, 2020.

Assembly Bill 5 had the overwhelming support of the state legislature, and the governor’s signature was widely anticipated, as his office had already voiced support for the measure.

Orange County employment lawyers know the goal is to reduce instances of worker misclassification, which is when employees are improperly designated as “independent contractors” rather than “employees,” which deprives them of a host of basic protections afforded to employees, such as:

• Minimum wage;
• Sick days;
• Health insurance benefits;
• Meal breaks;
• Rest breaks;
• Workers’ compensation insurance.

This allows companies to save a buck, but at the expense of workers, who are being taken advantage of.

Details of AB5

The law requires that workers in California be considered an employee unless employers can show that the work they perform meets the rigorous criteria as designated in last year’s California Supreme Court ruling in Dynamex Operations West, Inc. v. Superior Court of Los Angeles County.

In Dynamex, the court held workers are employees if:

• His/her job forms part of the company’s core business operations;
• Bosses direct the way the work is done;
• The worker has not established an independent trade/business.

In effect, the ruling – plus the new state law – make it tougher for companies to rely on contract or freelance work. It also gives both state and city officials the right to pursue litigation against corporations over employee misclassification – effectively overriding any arbitration agreements, something our Orange County employment attorneys are aware many companies use to protect themselves against employee complaints.

Supporters of the measure note that a recent state employment audit revealed some 500,000 employees were improperly classified as independent contractors, depriving them of key employee rights to which they should have been entitled under the law. Many of the workers in question comprise the lowest wage earners.

The new law started as a means to formalize the state supreme court’s ruling from last year, lobbyists soon entered the fray, fighting to have their respective industries exempt from the rules. This led to a host of professions effectively exempt from the rule – more than a dozen in all, from accountants and doctors to graphic designers and journalists.

Employees in other professions are only exempt under certain conditions. For example, sales workers can be exempt if their payment is based on actual sales as opposed to referrals or wholesale buys.

Some lobbying groups, such as truckers, were not successful in their bids for exemption.

Enforcement Challenges Likely to Set the Stage for Future Disputes