How AB5 Has Changed The Employment Landscape
As a result of California’s Assembly Bill 5, effective January 1, 2020, the California Supreme Court’s ABC test is now the standard for evaluating independent contractor classifications for purposes of the Industrial Welfare Commission Wage Orders, California Labor Code, and the California Unemployment Insurance Code.
That dramatically ups the ante for companies that rely on independent contractors, particularly those that have not re-evaluated such classifications under the ABC test.
Misclassification cases can be devastating, especially for misclassified non-exempt employees, and can result in minimum wage violations, missed meal and rest periods, unpaid overtime, unreimbursed business expenses, record-keeping violations, steep penalties, attorneys’ fees, and even criminal liability, among other consequences.
Misclassifying workers creates enormous risks for companies and is fertile ground for class actions and representative actions under the Private Attorneys General Act (PAGA).
The Costs Of Misclassification Are Expensive, And Hope Is Not A Strategy
Many business owners I speak to understand AB5 has caused the ground to shift beneath their feet and recognize the resulting risks of misclassifying workers. Despite these risks, companies often balk at taking the necessary steps to evaluate their classifications and mitigate the risk of an adverse classification finding.
The most common reason I hear from resistant companies is the worker does not want to be reclassified as an employee and the company trusts the worker (“I’ve worked with her for years; she won’t sue me because she wants to be a contractor”).
I get it. Making the change from contractor to employee results in less flexibility and greater administrative burden for everyone involved. While I’m sympathetic, the government is not. Reluctance to change while acknowledging the associated risks amounts to a strategy based on hope. As we say in the Marine Corps, however, “hope is not a strategy.”
On Tuesday, Assemblymembers Lorena Gonzalez (D–San Diego) and Christina Garcia (D–Bell Gardens) introduced Assembly Bill (A.B.) 2389. The bill would require adult entertainers and video performers, including webcam performers, to obtain a business license and complete a state-mandated training course before being allowed to ply their trade.
Requirements for that training would be developed by the state’s Department of Industrial Relations (DIR), which would, in turn, be advised by a new 10-member, governor-appointed board composed of two adult film actors, three dancers, two medical doctors, a therapist, and a money manager….Gonzalez is also the author of the controversial A.B. 5 legislation that requires many gig economy workers to be classified as employees and not independent contractors.
Gonzalez deserves much of the blame for the AB5 train wreck, but she had plenty of support from her party: nearly every assembly member who approved AB5 is a Democrat, including Governor Gavin Newsom. Those opposed: Republicans and Independents. Senator Patricia Bates, a Republican state senator representing parts of Orange and San Diego counties, has been hearing from constituents who had no idea that they were swept up in the AB5 net. “They’re asking, ‘Who did this to me?’” says Bates. “I don’t like to make it partisan, but I have to tell them the majority party that runs the show did it. There’s a new awareness about the anti-business environment and how it affects their right to work, to be free.”
Independent contractors are entering new territory. Suddenly, a more conservative approach seems more attractive. “My entire political mindset has changed drastically following the enactment of AB5,” says Cathy Hertz, a freelance copyeditor of STM (science-technology-medicine) books, from Loma Linda. Hertz campaigned for Barack Obama cross-country at her own expense in 2008; she campaigned for him locally, in Los Angeles, in 2012. “Now I feel that the rights of entrepreneurs are being stifled, trampled upon, violated,” she says. “Free enterprise is one of the main pillars of modern democracy.”