If you are in any way related to the business or corporate world, then you might have heard of AB5 California. In any scenario, there are endless legal obligations that need to be gratified by a company. It is likely that the rhythm of legal obligations fulfilled by a company might tremble when new bills or amendments are passed. The AB5 California is one such bill. It is an amendment that protects independent contractors. This amendment has had a massive impact on many companies. The AB5 California has especially had a huge effect on companies that hire gig workers. It has also proven to cause disturbances in the trucking industry as well.
What Is AB5 California?
California Assembly Bill 5 or AB5 was passed on January 1st, 2020. This piece of legislation, more popularly known as the “gig worker bill” protects independent contractors. It requires the companies to reclassify their independent contractors as employees. When independent contractors are hired, they are not given most of the benefits that are enjoyed by the employees. Benefits such as overtime pay, minimum wage, paid leaves, workers’ compensation, etc. are not accessible to independent contractors. This law only pertains to workers who are employed in California. The law is applicable regardless of the location of the employer as well. Similarly, if the employer is based in California, it doesn’t apply to workers who are not employed in that state.
The AB5 was designed in favor of independent contractors. The companies have to prove the worker’s status as an independent contractor or they have to be considered employees. Numerous workers, who have been originally considered independent contractors were reclassified as employees. This led to these workers getting access to the benefits and protection enjoyed by normal employees hired by the company. This piece of legislation caused a huge commotion in the world of business and for a short period, disrupted the smooth functioning of many companies. Several companies, such as Lyft, Uber, delivery services, and other platforms that hire online, sponsored “Proposition 22” which was successful. Proposition 22 excluded many of the drivers that dealt in ride shares and delivery services that are app-based.
According to AB5 California, independent contractors are considered employees. However, the company can subject them to a three-pronged ABC test, and if the companies are able to prove that the worker can perform other functions that are not controlled or directed by the company, or that, the worker is engaging in tasks that are not similar to the usual activities of the company, or that the worker typically works in a categorized trade, profession, or business that has been independently established which is similar to the work that they are involved in with the company.
How Does The AB5 California Affect The Independent Contractors?
The immediate effect of AB5 California was that many of the independent contractors were considered employees. Any gig worker that is engaging in the work of a company and if that work is the same as the business that the company deals with, then they are supposed to be considered as employees. The company needs to subject the workers to an ABC test and prove they are independent contractors. If the company can’t prove that, then they have to be reclassified as employees. This would mean that they would be entitled to benefits like minimum wage, rest breaks, reimbursements for expenses, and other benefits that are enjoyed by employees under the state of California. The AB5 created fair play between normal employees hired by the companies and gig workers.
Despite all the numerous benefits that gig workers get to enjoy, there might be certain cons they have to face as well. When gig workers are considered employees they might have to uphold a higher standard when it comes to their performance. The gig workers might not be able to have the same flexibility in working hours, etc. that they used to have when they were considered independent contractors.
How Does AB5 California Affect Transportation Businesses?
The AB5 California did cause a bit of a ruckus in the business world. However, not all businesses are bound by this piece of legislation. There are certain businesses and employees that are exempted from AB5 California. Businesses such as referral agencies, attorneys, real estate agents, etc. The companies that have to abide by the bill have to be careful and reclassify the independent contractors they hire into employees so that they don’t violate the terms dictated by the bill.
As it has been already established, the AB5 bill mostly affects businesses and companies that hire gig workers. Several transportation and ride-sharing companies such as Uber, Lyft, etc. were taken by storm by the AB5 California. Food delivery services are seen to be affected as well. Multinational companies like Uber have viewed the AB5 California as a threat to their existence. Such companies also stand to lose huge sums of money, if the gig workers they hired have to be reclassified as employees. Since the ABC test is required to prove workers as independent contractors, it is obvious that these companies will fail the test. They will have to pay thousands of dollars annually for every single driver. Many ride-share drivers have taken such transportation companies to court, on the basis of the claims that they do not meet the criteria for independent contractors and should be reclassified as employees. There have also been allegations against such companies that they are refusing to re-classify independent contractors as employees because they are reluctant to spend more money.
However, these companies have also come up with strong counter-arguments in order to justify why they do not want to reclassify their gig workers as employees. Companies claim that they are not in control of how many working hours are indulged by their gig workers. Companies like Lyft and Uber claim that they do not provide vehicles driven by gig workers and therefore they are not qualified to be reclassified as employees. It is speculated that the companies are against the AB5 as they will have to pay millions of dollars in taxes as a part of employee benefits and they aren’t particularly fond of the idea of giving the ride-share and delivery drivers the power to form unions that can renegotiate contracts, etc. These companies, however, did come together and sponsor a successful ballot proposition which was termed “Proposition 22” which has exempted most gig workers who are hired for app-based work. It can be said that AB5 California is a double-edged sword for both parties.