On January 1, 2020, Assembly Bill (AB) 5 will go into effect. This new law addresses whether workers are employees or independent contractors for purposes of certain rights and benefits under state law. The information below is meant to help you understand the new law and how it may impact you.
What difference does it make if I am an employee rather than an independent contractor?
California’s wage and hour laws (e.g., minimum wage, overtime, meal periods and rest breaks, etc.), workplace safety laws, and retaliation laws protect employees, but not independent contractors. Additionally, employees can go to state agencies such as the Labor Commissioner’s Office to seek enforcement of these laws, whereas independent contractors must resolve their disputes or enforce their rights under their contracts through other means.
What is AB 5 and what does it do?
AB 5 is a bill the Governor signed into law in September 2019 addressing employment status when a worker is claimed to be an independent contractor. AB 5 requires the application of the “ABC test” to determine if workers in California are employees or independent contractors for purposes of the Labor Code, the Unemployment Insurance Code, and the Industrial Welfare Commission (IWC) wage orders. AB 5 provides exceptions to the ABC test for specified instances where certain requirements are met.
What is the ABC test?
Under the ABC test, a worker is considered an employee and not an independent contractor, unless the hiring entity satisfies all three of the following conditions:
A. The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
B. The worker performs work that is outside the usual course of the hiring entity’s business; and
C. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
Does AB 5 mean that I will automatically be reclassified as employees instead of independent contractors?
No. Labor Code section 2750.3 starts with an assumption that all workers are employees, and provides the test that a hiring entity would have to satisfy to prove that the workers are independent contractors.
What should I do if my employer keeps me under independent contractor status when I think I am considered an employee?
Are all workers protected by California labor laws?
In California, all workers are protected by labor laws regardless of their age, race, ethnicity, immigration status, orientation, or other differences.
How do I file a claim related to wages, injury, unsafe conditions, or retaliation?
Workers who have experienced wage theft, have been injured on the job, are experiencing unsafe or unhealthful workplaces, or are subjected to unlawful retaliation after standing up for their rights should review the following resources:
How do I apply for unemployment insurance, disability insurance, or paid family leave?
Does AB 5 and the ABC Test determine employee or independent contractor status for all occupations in California?
No. While the ABC test is the applicable test for most workers, for some jobs and industries Labor Code section 2750.3 applies the Borello multifactor test, described above. For some occupations, the Borello test applies without further requirements. However, for other occupations and industries, the Borello test applies instead of the ABC test only after the hiring entity satisfies other requirements first. Finally, for certain real estate licensees and repossession agencies, standards under the California Business and Professions Code will continue to apply.
Occupations where the Borello test applies instead of the ABC test under Labor Code section 2750.3:
- Certain licensed insurance agents and brokers
- Certain licensed physicians, surgeons, dentists, podiatrists, psychologists, or veterinarians
- Certain licensed attorneys, architects, engineers, private investigators and accountants
- Certain registered securities broker-dealers or investment advisers or their agents and representatives
- Certain direct salespersons
- Certain licensed commercial fishermen (only through December 31, 2022 unless extended by the Legislature)
- Certain newspaper distributors or carriers (only through December 31, 2020 unless extended by the Legislature)
Occupations or contracting relationships where Labor Code section 2750.3 requires that additional requirements must first be met in order to use the Borello test instead of the ABC test:
- Certain professional services contracts for marketing; human resources administration; travel agents; graphic design; grant writers; fine artists; enrolled agents licensed to practice before the IRS; payment processing agents; still photographers/ photojournalists; freelance writers, editors, or newspaper cartoonists; licensed barbers, cosmetologists, electrologists, estheticians, or manicurists (manicurists only through December 31, 2021). Borello applies to determine whether the individual is an employee of the hiring entity if initial requirements are met.
- Certain individuals performing work under a subcontract in the construction industry, including construction trucking (with certain specific conditions applicable to construction trucking only through December 31, 2021). Borello and Labor Code section 2750.5 apply to determine whether the individual is an employee of the contractor if initial requirements are met.
- Certain service providers who are referred to customers through referral agencies to provide graphic design, photography, tutoring, event planning, minor home repair, moving, home cleaning, errands, furniture assembly, animal services, dog walking, dog grooming, web design, picture hanging, pool cleaning or yard cleanup. Borello applies to determine whether the service provider is an employee of the referral agency if initial requirements are met.
- Certain individuals performing services pursuant to a third party’s contract with a motor club to provide motor club services. Borello applies to determine whether the individual is an employee of the motor club if initial requirements are met.
- Certain bona fide business-to-business contracting relationships. Borello applies to determine whether the business providing services is an employee of the business contracting for the services if initial requirements are met.
For two specific industries, special rules under Labor Code section 2750.3 require examination under the Business and Professions Code:
- Certain real estate licensees, for whom the test of employee or independent contractor status is governed by section 10032(b) of the Business and Professions Code. (If that section is not applicable, then Borello is the applicable test for purposes of the Labor Code, except ABC will be the applicable test for purposes of workers’ compensation as of July 1, 2020.)
- Certain repossession agencies, for which the determination of employee or independent contractor status is governed by Section 7500.2 of the Business and Professions Code.
The exemptions from the ABC test for certain industries, occupations, or contracting relationships may involve some complicated rules and criteria which are not set forth above. Employers and workers should seek independent advice and counsel if they have questions about the applicability of any exemption to their particular case.
Where can I obtain more information?
Read more details about AB 5 on the Frequently Asked Questions (FAQ) page.