On January 8st, 2020, Assembly Bill 5 (AB5) went into full effect. Serving to codify, clarify, and provide certain exemptions to the Dynamex Decision, AB5 makes it harder for companies like Uber, DoorDash, Lyft, and InstaCart to classify employees as independent contractors.
What’s the Difference Between an Employee and an Independent Contractor?
Simply put, an employee works for a company and is entitled to certain protections and benefits. An independent contractor works for herself, is responsible for all taxes, including FICA, and enjoys very few protections.
Employees enjoy benefits such as guaranteed minimum wage, overtime pay, sick and family leave, unemployment insurance, health insurance, and worker’s compensation. Employees are also legally protected against discrimination, harassment, and other forms of mistreatment at the workplace.
Independent contractors can be let go without notice or valid reason, do not have unemployment protections, and do not have access to workers’ compensation. Independent contractors are also on their own when legal issues or liability arise.
Due to the nature of gig-work, competition is extremely high and making a living often requires driving for several companies daily. This increases risks for accidents while requiring a significant amount of wear and tear on personal vehicles, all without any form of protection outside of personal insurance and finances.
The “ABC” Test
The ABC test, established by both the Dynamex and AB5 rulings, hold that a company must classify a worker as an employee if they meet three simple criteria:
- They perform tasks under a company’s control, and
- Their work is integral to the company’s business, and
- They do not have independent enterprises in that trade
This test has seen many gig-workers qualify for classification as employees, giving them job protections that have not previously enjoyed. Gig companies are, of course, not pleased with this.
Gig Companies File Suit
Reclassifying an independent contractor as an employee can increase company costs by 30% per worker. According to one study, that could add as much as $500 million per year to labor costs for companies like Uber.
Uber and Postmates have filed lawsuits to block AB5. Uber has also engaged in a public outreach campaign, vilifying drivers and trying to win the sympathy of riders in order to sway public opinion.
Working on the other side, unions within the AFL-CIO are currently working to change the law in order to allow gig-workers to organize. This, in addition to AB5, could have a profound impact on the security and stability of gig-work. More efforts from both sides should be expected in 2020.
Redondo Beach Employment Attorneys
If you live in the South Bay area and are in need of an employment attorney, Kirtland & Packard is here to help. Our attorneys are knowledgeable, attentive, and effective, and we are prepared to take viable cases as far as needed to ensure justice is served.
Call our Redondo Beach office at 310-536-1000 to schedule a complimentary case review and learn more.