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1099 vs W2 - Summary of AB5

Misclassifying workers as independent contractors remains one of the most common employment claims filed in California. These claims have especially risen considering the gig-economy companies that have emerged, however there are many other employment situations where these claims could apply. While classifying a worker as an employee or independent contractor seems like an easy question, the recent California laws have not provided a simple answer. This blog will discuss the recent changes in law that effects whether certain California workers should be classified as an employee or independent contractor.

In September of 2019, Gavin Newsome signed Assembly Bill 5, which officially codified the test for determining whether workers in California should be classified as employees or independent contractors. AB-5, otherwise known as the “Gig Worker Bill” has been in effect since January 1, 2020 and is therefore the current governing law for determining the status of an independent contractor.

Under AB-5, a California worker is presumed to be an employee, and will only be considered an “independent contractor” if these 3 requirements are met:

1) The worker is free from the hiring company’s control and direction in the performance of work

2) The worker is doing work that is outside the company’s usual course of business; and

3) The worker is engaged in an established trade, occupation, or business of the same nature as the work performed.

The AB-5 test comes from the California Supreme Court Decision, Dynamex, where the Court came up with the same 3 factors to determine whether a worker was an independent contractor or not. However, under Dynamex the test only applied to California wage order claims. AB-5 on the other hand, expands to all claims arising out of the California Labor Code, such as unpaid over time and minimum wage, meal and rest period violations, workers compensation and unemployment insurance, and many others.

The timing of AB-5 has confused many and is still not clear. For claims post January 1, 2020, AB-5 is the governing test, however, claims pre-January 1, 2020, whether AB-5 will apply depends on the time period, claims and occupations, and the current California Supreme Court decisions under review. Therefore, while AB-5 may be considered the new sheriff in town, the test in Dynamex and Borello may still be applicable.

Whether a worker should be classified as an employee or independent contractor can vastly change the outcome of an employment dispute. The uncertainty of the current legislation only presents more risks for those involved in employment disputes which by nature are complex and costly.

A skilled labor and employment attorney can provide some guidance on how these new laws will affect your employment situation and ensure that your rights are being fully protected. Mr. McClaren, the head of our employment law department, has over a decade worth of experience in employment law, and is committed to helping clients in all situations resolve their employment disputes.



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