In September, California Governor Gavin Newsom signed AB 5 into law which introduced strict new rules for employee classification. Under the new law, workers will be considered employees—and not independent contractors—unless they meet three conditions (labeled the “ABC test“):
- The person is free from the control and direction of the business, both under the contract and in fact.
- The person performs work that is outside the usual course of the business’s product or service offerings.
- The person is customarily engaged in an independently established business.
The new law has faced significant opposition from various lawmakers and businesses, including gig-economy companies such as Uber (which faces lawsuits under existing law too). AB 5 takes effect January 1, 2020.
Business Takeaway: With respect to legal developments, it is often said that “as goes California, so goes the country.” While this is a California law (i.e., not authoritative or binding outside California), it may be a sign of things to come. For example, companies with California operations may adapt their entire business models to be California-compliant for administrative reasons. How would transitioning contractors to employees affect your business?