Independent Contractors and AB5
To protect your business, correctly classifying your worker as an independent contractor has become increasingly important. In the past, California law used to weigh several different factors when determining a worker as an employee or an independent contractor. These factors were mostly focused on the degree of control the employer had over how the work was performed.
But the new rules set in 2018 have restricted the classification, limiting the number of employees who could lawfully be considered independent contractors. Under Assembly Bill 5 (AB5), companies must demonstrate that their contractors have a separate business and that the business is of a different type than the company’s usual line of work to categorize them as independent contractors.
The ABC Test
AB5 codifies the California Supreme Court’s landmark decision in Dynamex Operations West v. Superior Court, 4 Cal. 5th 903 (2018), establishing the ABC test as the primary way to classify workers as independent contractors.
The foundation of the ABC test stands on the presumption that all workers are employees unless proven otherwise. The burden is therefore on the hiring company to prove that they have properly classified their workers as independent contractors. To prove an independent contractor relationship, the hirer must meet all three prongs of the new “ABC test”:
Factor “A”: To be an independent contractor, the worker must be free from the hirer’s “control and direction.”
- Factor “B”: To be an independent contractor, the worker must also perform work “that is outside the usual course of the hiring entity’s business.”
- Factor “C”: To be an independent contractor, the worker must ordinarily work in the trade for which the hiring company is seeking his or her services.
If your company hires independent contractors and want to make sure your agreements comply with the latest California laws, our experienced employment attorneys can craft an agreement tailored to the needs of your business.
Whether you are just starting a brand new company, run a “mom & pop” business, or already have a large established corporate enterprise, we are here to grow with you and meet your legal needs.
Do you have independent contractors?
Fill out our form to download our guide to AB5 compliance, which includes a detailed summary of Assembly Bill 5 and how to conduct an independent contractor analysis in light of exemptions like:
- Occupational Exemptions
- “Business-to-Business” Exemption
- “Referral Agency” Exemptions
- “Professional Services” Exemption