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California Assembly Bill 5 (2019)

Our blog features common legal questions, topics, and news in an easy-to-digest format. Follow us to stay up to date! As California Governor, Gavin Newsom, signed Assembly Bill 5 into law on September 18th, the standard for determining whether workers should be classified as employees or independent contractors was, in effect, dramatically altered. Superior Court of Los Angeles 4 Cal. The Dynamex case held that there is a general presumption that most workers are indeed employees, and should be classified as such. It placed the burden of proof for hiring entities to classify individuals as independent contractors under what is known as the three-part AB5 ABC test. The ruling and the newly signed bill require businesses to use the ABC test in determining whether a worker is an employee or an independent contractor. Under the ABC test, for a worker to be classified as an independent contractor a hiring entity must first prove the following:. A The worker is free from the control and direction of the hirer in connection with the performance of the work, practically and in the contractual agreement between the parties. This amounts to a more straightforward, and stricter, standard of proof for companies than what many employment lawyers agree were vague guidelines within federal law. For most companies, meeting all of the above standards set forth in the ABC test will be challenging. And two of the most prominent companies that will be impacted considerably by AB5 are Uber and Lyft. Despite an expensive and aggressive lobbying campaign, Uber and Lyft were not found eligible to be exempt though they vow to fight the decision, and it should be noted that although other states such as New York are considering similar legislation, California is the first state to actually pass a bill into law. However, as the law stands now, it has some major implications for a large number of California workers. ApproximatelyCalifornians work for traditional gig platforms like Uber and Lyft. Additionally, nearly 1. The nearly 2 million aforementioned California workers will now be provided with basic labor rights, a first time occurrence for Uber and Lyft drivers. Under AB5, employees are now entitled to benefits including:. With both companies recently going public upon launching initial public offerings IPOstheir annual profit reports are now opened up to scrutiny. Of late the media has focused on the fact that both companies are currently hemorrhaging losses. Those additional costs, combined with consistent financial losses, are indicative of why both Uber and Lyft are pushing back so forcefully against the AB5 law. Both options would apply only from the time a driver accepted a ride request until that ride concluded. But Uber and Lyft drivers are certainly not the only workers who will be affected by the passage of AB5. In fact, in actuality the law could primarily affect non-gig workers. And for some, there is a grey area that can be viewed as open for interpretation as to whether they are covered under AB5. One example that demonstrates the potential for interpretation could be Costco. Apart from selling retail goods such as garage doors, Costco also offers services including installation for such products. And there are multiple examples of various types of companies who could find themselves with similar scenarios that are equally unclear. Trucking companies, newspaper publishers, and cleaning operations could be among the types of companies most significantly impacted by the new law. However, the bill is said to mandate that companies sending out workers to provide various services to a potential array of clientele — such as truck driving companies who send their drivers out for deliveries to any number of varying clients, and cleaning companies that send their workers to locations such as restaurants or other public venues — will no longer be able to defend as a legal premise that those specific jobs are an example of the workers running their personally owned companies. While Uber and Lyft were unsuccessful at demonstrating a case for why they should be exempt, dozens of professions were successful in winning exemptions to AB5. What tended to separate these exempt professions from others such as ride share drivers was:. Examples of those exempt professions, primarily of the white-collar variety, include psychologists, doctors, dentists, insurance agents, podiatrists, stock brokers, lawyers, accountants, engineers, veterinarians, direct sellers, real estate agents, hairstylists and barbers, aestheticians, commercial fishermen, marketing professionals, travel agents, graphic designers, grant writers, fine artists, enrolled agents, payment processing agents, repossession agents and human resources administrators. There are also some exceptions pertaining to photographers, photojournalists, freelance writers, editors, as well as for some types of business-to-business dealings. Many employment lawyers feel that, as it was passed mere days ago, the AB5 law carries a degree of uncertainty and a lack of overall comprehension of its ramifications both immediate and long-term for many workers. There appears to be an overall consensus that workers who could be affected by the law, and find themselves newly validated as company employees inshould consult a labor lawyer to ensure they have a full understanding of how the law will affect them in their specific jobs. Moreover, and perhaps most important, employment lawyers and experts suggest that workers should remain vigilant and continue to monitor the situation as it unfolds.

California’s AB5 Law: What Your Business Clients Need to Know About the Landmark Bill in 2020


Department of Industrial Relations 48 Cal. Superior Court of Los Angeles 4 Cal. Nothing in this subdivision shall apply to the employment settings currently or potentially governed by collective bargaining agreements for the licensees identified in this paragraph. This report shall include, but not be limited to, reporting the number of commercial fishermen who apply for unemployment insurance benefits, the number of commercial fishermen who have their claims disputed, the number of commercial fishermen who have their claims denied, and the number of commercial fishermen who receive unemployment insurance benefits. The report required by this subparagraph shall be submitted in compliance with Section of the Government Code. Nothing in this subdivision prohibits an individual from choosing to perform services at the location of the hiring entity. This clause is not applicable to an individual who works on motion pictures, which includes, but is not limited to, projects produced for theatrical, television, internet streaming for any device, commercial productions, broadcast news, music videos, and live shows, whether distributed live or recorded for later broadcast, regardless of the distribution platform. Nothing in this section shall prevent a photographer or artist from displaying their work product for sale. Items of content produced on a recurring basis related to a general topic shall be considered separate submissions for purposes of calculating the 35 times per year. If that section is not applicable, then this determination shall be governed as follows: A for purposes of unemployment insurance by Section of the Unemployment Insurance Code; B for purposes of workers compensation by Section et seq. The statutorily imposed duties of a responsible broker under Section An individual employee providing their own truck for use by an employer trucking company shall be reimbursed by the trucking company for the reasonable expense incurred for the use of the employee owned truck. This subparagraph does not apply if the service provider accepts a client or contract and then fails to fulfill any of its contractual obligations. The determination whether such an individual is an employee of a referral agency is governed by subdivision a. An officer or member of a board of directors may elect to be excluded from coverage in accordance with paragraph 1618or 19 of subdivision a of Section A general partner of a partnership or a managing member of a limited liability company may elect to be excluded from coverage in accordance with paragraph 17 of subdivision a of Section To the extent that this person is deemed to be an employee described in subdivision c or fas applicable, the person may also elect to be excluded from coverage as described in subdivision c or fas applicable, if that person otherwise meets the criteria for exclusion, as described in Section This subdivision shall not apply retroactively. If an individual or entity contracts to supply an employee to perform services for a client or customer and is not a leasing employer or a temporary services employer, the client or customer is the employer of the employee who performs the services. An individual or entity that contracts to supply an employee to perform services for a customer or client and pays wages to the employee for the services, but is not a leasing employer or a temporary services employer, pays the wages as the agent of the employer. If the employer to whom the employee is loaned pays remuneration to the employee for the services performed, that employer shall be considered the employer for the purposes of any remuneration paid to the employee by the employer, regardless of whether the loaning employer also pays remuneration to the employee. Assembly Bill No.

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Many investors felt that the company's strong position in the ride-hailing industry would turn into meaningful returns on the stock market. However, things haven't gone that way, at least not yet. One reason behind this lackluster performance has been the red ink on Uber's bottom line. Although few people expected the ridesharing giant to turn a profit in its first year as a publicly traded company, the pace at which Uber has been losing money is dizzying. Unfortunately for Uber, a new California law dubbed AB5 makes it harder for the company to classify its drivers as independent contractors, and its road to profitability isn't getting any easier. Gig workers -- i. These benefits include paid time off, sick days, a minimum wage, and unemployment insurance, among others. AB5 outlines three conditions that companies must meet to classify those working for them as independent contractors:. After all, for Uber, having to reclassify its drivers as fully fledged employees would mean these drivers are entitled to the benefits being an employee typically comes with. Providing such benefits to thousands of contractors-turned-employees would drastically increase Uber's expenses. During Uber's third-quarter earnings conference callCEO Dara Khosrowshahi announced the company's plans to become profitable by However, that comes with a major caveat: Khosrowshahi was only referring to Uber's earnings before taxes, expenses, depreciation, and amortization EBITDA being in the green. The company has no timeline that we know of for when it will record a net profit. And with AB5 taking effect, the company's expenses will likely rise, which could make it even more difficult for Uber to become profitable. Note that other states, such as New York New York City is Uber's largest ridesharing markethave been exploring the possibility of enacting similar laws. New York City even imposed some restrictions on the company, including a minimum driver wage. In other words, the regulatory landscape isn't getting any easier for Uber, and that may well affect the company's ability to become profitable. Despite all the problems Uber is facing, some may argue that given its leading position in the ride-hailing market -- as well as its food delivery app Uber Eats -- the company could well turn things around. However, Uber is losing money at a fast clip, and given the worsening regulatory conditions, Uber likely won't be consistently profitable anytime soon. For those reasons, I think it's best to stay on the sidelines for now, especially as there are plenty of exciting growth stocks to consider buying. Jan 14, at PM. Image source: Getty Images. Stock Advisor launched in February of Join Stock Advisor. Related Articles.

California Assembly Bill 5 (AB5)


Superior Court. AB 5 entitles workers classified as employees to greater labor protections, such as minimum wage laws, sick leave, and unemployment and workers' compensation benefits, which do not apply to independent contractors. AB 5 allows businesses to apply for exemption, which Uber and Lyft attempted, but were both denied. Several businesses were granted exemptions because they were able to demonstrate the following:. Uber and Lyft both said they plan to continue "business as usual" and are refusing to reclassify their drivers as employees, which potentially exposes the gig-work companies to litigation from state agencies. On April 30,the Supreme Court of California ruled in Dynamex [1] to impose stricter requirements for employee classification. It created a 3-part test to determine whether an employee could be classified as a contractor rather than an employee, commonly known as the "ABC" test, replacing a previous point standard set in Borello [9] in the Borello test. This test is excluded in certain specified cases, where Borello will continue to apply. This is declared without qualification for a specified list of occupations, [16] and, for other stated professionalB2B and construction services, respectively, separate lists of conditions must also be fully applicable in order to establish that a worker is an independent contractor. The law also gives cities in the state the right to sue companies for violating the law, where previously they could not. The California Attorney General's office and local prosecutors can also sue companies. After discussions and amendments to the law, which primarily included exceptions for certain professions, the bill first passed the Assembly in May Other amendments and exceptions were made, primarily to exclude particular professions. The bill drew national attention, including the support of multiple presidential candidates. We continue to believe that drivers are properly classified as independent. In response to the implementation of the law, the United States Court of Appeals for the Ninth Circuit reinstated its decision in Vazquez v. Jan-Pro[26] which impacts California franchise law and California independent contractor law, [27] by making it unclear that if a franchisor licenses its trademark to a franchisee whether the franchisor incurs the liabilities of an employer. Newspaper delivery workers will be given an extra year before compliance. The Association argues that many of the represented drivers had opted to be independent contractors after having been employeed drivers, as this allows them to set their own schedules and otherwise profit from owning their own vehicle. Enforcement of AB5 would force them to be treated as employees and lose these benefits, the Association argued. On December 17,the American Society of Journalists and Authors and the National Press Photographers Association filed suit in United States District Court for the Central District of California, Western Division claiming the law unconstitutionally singled out freelance journalists by limiting the amount of work they can produce for any single publisher, unlike any other job category listed as "professional services". Uber and Postmates filed a similar suit at the end of Decemberchallenging that the law denies equal protection due to the what types of jobs were exempted or not. Organizers expected AB5 to lead to the growth of labor unions. The Recording Academy expressed concerns that AB 5 would negatively impact gigging musicians, and stated that it is lobbying California lawmakers to inform them about "the impact of such legislation". Director of San Jose Jazz Brendan Rawson argues that because AB 5 requires any music venue to designate members of an act performing there even once as official employees of the venue itself, events such as music festivals will be severely and unnecessarily burdened. The only way around this, Rawson says, is for musicians to incorporate themselves. Forbes criticized the bill's limits on freelance journalism and is advocating for California to change it. No one has ever suggested that, even freelancers. We will continue to work on this next year. In December Vox Media ended contracts with about freelance sports writers and editors who wrote for the blog network SB Nationand announced it would replace them with 20 new part-time and full-time employees.

As California’s AB5 Becomes Law, Uber’s Path to Profitability Just Got More Complicated

On Sept. If workers are not independent contractors, they are employees. With the ABC Test, an employer must prove all three elements in order to qualify for independent contractor status. If an employer can only prove two of the three elements, they will not qualify. In addition, a handful of industries are currently exempt and will continue to use the Borello test until further determination. The following are issues that businesses should be aware of when it comes to the AB5 law. An estimated 53 million independent contractors work in the U. Many companies, like Uber and Postmates, are fighting back, arguing that AB5 violates federal and state constitutional guarantees of equal protection and due process. As the law continues to evolve in California, employers in all states should take a wait-and-see approach but remain informed as to updates to the law. Jeff can be reached at jgans wwfi. How Does AB5 Work? The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed. If a business fails the test and lacks sufficient capital to satisfy a misclassification judgment or award, both the government and private litigants can pursue Labor Code monetary penalties based on the misclassification from officers and directors personally. For some businesses, these costs may be difficult to absorb and significantly impact revenue. Bigger incentives for misclassified contractors. Aggressive enforcement. Moving Forward An estimated 53 million independent contractors work in the U. Looking for a specific solution? To deliver an optimal experience, this site is requesting permission to place small data files called cookies on your device. Cookie list. Cookie Box Settings Cookie Settings. Privacy settings Decide which cookies you want to allow. You can change these settings at any time. 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California's AB5 Bill for Uber, Lyft, & Gig Economy - All Up In Yo' Business



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