Governor Codifies the “ABC Test” for Independent Contractors by Signing AB 5

Governor Codifies the “ABC Test” for Independent Contractors by Signing AB 5

On September 18, 2019, the governor signed Assembly Bill 5, which becomes effective on January 1, 2020. AB 5 codifies and expands on the California Supreme Court’s 2018 Dynamex decision which applied its so-called “ABC test” to determine whether a worker in California is an employee or an independent contractor. Under Dynamex, for a worker to be considered an independent contractor, an employer must establish that he or she A) is free from the control of the hiring entity in connection with work performance — both under the performance contract and in fact; B) performs work outside the hiring entity’s usual business; and C) is customarily engaged in an independent business of the same nature as the work performed.

The new law contains exemptions, and also certain limited exemptions, for specified occupations. But as a result of AB 5, companies are likely to see an increase in lawsuits filed as class actions and/or under the Private Attorney Generals Act (PAGA), alleging that a group of employees have been “misclassified” to avoid having to pay overtime, unemployment and disability insurance premiums, provide meal and rest periods, reimburse for business-related expenses, etc. Furthermore, in his signing message for AB 5, Governor Newsom stated, “Assembly Bill 5 is an important step. A next step is creating pathways for more workers to form a union, collectively bargain to earn more, and have a stronger voice at work. . .”