New California Law Affecting Independent Contractors And Freelancers

By Kelly Bagla, Esq.

California has done it again, making it even harder for independent contractors and freelancers to make a living in the State of California.

Last year the California Supreme Court announced a demanding three-part test hiring companies must meet to classify workers as independent contractors instead of employees.

On September 18, 2019, California governor Gavin Newsom signed into law California Assembly Bill 5 (AB-5) that becomes effective January 1, 2020, which broadens the three-part test beyond violations of the state’s wage orders, narrows the types of work to which that test applies, and authorizes the city attorneys of big California cities to sue hiring companies to enforce the new law.

This could potentially reclassify millions of independent contractors as employees and dramatically reshape the future of independent workforces in California.

The court held in the Dynamex Case that an “ABC Test” must be used to determine worker classification. A worker can only be classified as an independent contractor if:

  1. The worker is free from control and direction in the performance of services; and
  2. The worker is performing work outside the usual course of the business of the hiring company; and
  3. The worker is customarily engaged in an independently established trade, occupation or business.

The most immediate implication of AB-5 and the ABC Test is that it turns independent contractors into employees. AB-5 puts ride-sharing and delivery companies, such as Uber, Lyft and DoorDash, in the spotlight. AB-5 will also limit the amount of work a freelancer can do for a company, such as independent writers who make a living writing articles for various news outlets or magazines or even websites, as under this law, freelance writers will only be allowed to write 35 submissions before they are either hired as an employee or not used again by the company, leading to loss of work.

Who is exempt from AB-5?

The types of businesses that are exempt from the bill include but are not limited to: doctors, lawyers, dentists, insurance agents, accountants, engineers, real estate agents, hairstylists and a variety of creative professionals. This does not mean that all of these businesses will be automatically labeled independent contractors. In addition to the ABC Test, these businesses will also have to pass the multi-factor test applied in the Borello case.

What to do next?

There is no doubt that AB-5 will have a meaningful impact in California so it’s a good time to start planning and taking the necessary steps now. An immediate step you can take is to incorporate your business and now you will fall within the business to business category where hiring companies will continue to hire without the threat of having to turn you into employees.

I’m the CEO of GoLegalYourself.com where we provide legal tools for savvy entrepreneurs and I’m proud to provide a limited time offer of 40% discount on our Startup Essentials Package to help you prepare for the AB-5 Law that will take effect January 1, 2020. Please use the code Startup40.

For more information on how to legally protect your business please pick up a copy of my bestselling book: ‘Go Legal Yourself’ on Amazon or visit my website at www.golegalyourself.com

Disclaimer: This information is made available by Bagla Law Firm, APC for educational purposes only as well as to give you general information and a general understanding of the law, and not to provide specific legal advice. This information should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.