On September 18, 2019, California Governor Gavin Newsom signed into effect Assembly Bill 5. The legislature limits companies’ use of independent contractors and goes into effect on January 1, 2020. The alleged goal of the new law is to reclassify individuals so that the state government can generate previously avoided payroll tax payments, premiums for workers’ compensation, unemployment, Social Security and disability insurance. However, what it has really done is caused millions of freelance workers to lose their jobs and any opportunities for them to find freelance work in- or out-of-state, so long as they are California residents.
The law does not outlaw the use of independent contractors entirely but rather, severely limits who qualifies as a contractor. According to the California Employment Law Report, it does this through an ABC test. The test prohibits any hiring entity from classifying an individual as an independent contractor unless it can establish that the following are true:
- The worker has full control and direction of the work in fact or of the terms of the contractor’s agreement.
- The work the contractor performs falls outside the “usual course” of business performed by the hiring entity.
- The worker primarily engages in an independently established occupation, trade or business of the same nature as that involved in the contracted work.
Of course, per the San Diego Tribune, this test makes millions of gig workers ineligible for the very work they chose to do. Many workers hope they qualify for one of the law’s few exemptions. Among the exemptions include lawyers, physicians, accountants, private investigators, engineers, certain human resources and marketing professionals and beauty shop workers who meet certain conditions, such as the ability to set their own rates. The exemptions also include “bona fide business-to-business contracting relationships.” That is, any relationship through which a partnership, sole proprietor or another form of business provides services to another.