AB5 and Independent Contractors
In order to protect your company, correctly classifying your worker as an independent contractor has become increasingly vital. Formerly, California law used to weigh several different factors when regulating a worker as an employee or an independent contractor. These elements were mostly focused on the degree of control the employer had over how the work was carried out.
But the revised rules enacted in 2018 have restricted the classification, restricting the number of employees who could lawfully be contemplated as independent contractors. Under Assembly Bill 5 (AB5), businesses must exhibit that their contractors have a separate business and that the business is of a different type than the company’s usual line of work to categorize them as independent contractors.
What is the ABC Test
AB5 systematized the California Supreme Court’s landmark decision in Dynamex Operations West v. Superior Court, 4 Cal. 5th 903 (2018) which has established the ABC test as the primary way to classify workers as independent contractors.
The fundamentals of the ABC test stands on the presumption that all workers are employees unless proven to the contrary. The burden is therefore on the hiring company to demonstrate that they have properly classified their workers as independent contractors. In order to prove an independent contractor relationship, the hirer must meet all three prongs of the new “ABC test” which are the following:
Factor “A”: In order to be an independent contractor, the worker must be free from the hirer’s “control and administration.”
Factor “B”: In order to be an independent contractor, the worker must also execute work “that is outside the usual course of the hiring entity’s business.”
Factor “C”: In order to be an independent contractor, the worker must ordinarily work in the trade for which the hiring company is seeking to render his or her services.
If your company is contemplating on hiring independent contractors and want to ensure your agreements abide by the latest California regulation laws, our experienced employment attorneys can craft an agreement tailored to the needs of your business.
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