The Freelancers' Blog

AB5: So Goes California, So Goes the Nation?

Aug 20, 2020 1:26:20 PM / by SoleVenture

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If you’re a contractor or follow business news, you’ve likely heard of AB5: the California law that classified millions of California independent contractors as employees. Gig tech giants Uber, Lyft, DoorDash, Postmates, and Instacart, have spent over $100 million to fund Proposition 22, hoping voters this November will exempt app-based drivers from AB5. On August 20, 2020, Lyft announced it was suspending service in California and Uber was threatening to do the same. Hours later, the courts granted them a temporary reprieve. States across the nation are watching how this ballot measure may decide the fate of the gig economy. Here is everything you need to know:

 

AB5 came from a court case.

AB5 puts into law the 2018 decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles County. In its ruling, the court establishes the “ABC” test that presumes most workers are employees.

 

What is the “ABC” test?

The “ABC” test is used to determine whether or not a worker should be classified as an independent contractor. The test is made up of three requirements:

  1. The worker is free from the control and direction from the hiring entity;
  2. The worker performs work that is outside the usual course of the entity’s business; AND
  3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work being performed.

 

Only workers that meet all three of these requirements are classified as independent contractors. California is one of many states that applies the “ABC” test, so what makes this one so notable? The answer lies in the “B” component. If the person is performing work that is part of the usual course of the hiring entity’s business, then the worker is an employee. This is a much more restrictive requirement than in other states, and it narrows the scope of what an independent contractor can do.

 

AB5 doesn’t apply to every profession.

Some professions were exempted from AB5 at the outset, including lawyers, doctors, hairstylists and manicurists. However, carve outs have continued since its passage in January 2020. For example, freelance musicians have more recently won an exemption from the law.

 

What would Proposition 22 do?

Under AB5, drivers for companies like Uber and Lyft in California are classified as employees and entitled to all the corresponding benefits. Proposition 22 would classify drivers for app-based transportation companies as independent contractors, but they would be entitled to several traditional employee protections like minimum wage, overtime, and unemployment insurance.  

 

Proposition 22 is on the ballot this November.

Proposition 22 will be on the California ballot during the 2020 election. The ballot measure is opposed by many labor rights organizations who argue that app-based drivers do the work of employees and are entitled to the corresponding benefits. However, the California State NAACP has become a strange bedfellow to Uber and Lyft. The organization is supporting the measure because they say app-based driving services provide “…an accessible, low barrier-to-entry way to earn income for those who often find traditional employment challenging – communities of color, seniors, disabled veterans and those formerly incarcerated.”

 

AB5 and Prop 22 will continue to have a significant impact on US labor and employment laws long after 2020. One thing is for sure: all eyes will be on California this November.

 

SoleVenture

Written by SoleVenture

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