With the approval of California’s Assembly Bill 5 – which classifies the recent Dynamex court decision to use stricter ABC testing for determining independent contractor status – many businesses could face consequences regarding employee classification under the new rules should it next pass in the state Senate.
What is Assembly Bill 5?
The California State Assembly passed Assembly Bill 5 on May 29, 2019 and forwarded the bill to the state Senate. The bill affirms the Dynamex court decision as an interpretation of existing state law, and adopts the ‘ABC’ test to determine whether a worker is an employee eligible for protections under the state’s wage order rules. Further, the bill creates a presumption that a worker is an employee, unless each factor of the test can be satisfied.
A. The worker must have independence from directions of the hiring entity;
B. Work performed must be outside the usual course of the hiring entity’s business; and
C. The worker has an independent occupation or business.
Assembly Bill 5 would apply to classify workers as employees for purposes of unemployment compensation, worker’s compensation, and state wage and hour and working conditions laws.
The Impact on Employee Classification
As is clear from the Supreme Court’s decision and the preface to Assembly Bill 5, the ABC test is an interpretation of existing law rather than the creation of new law. As a result, up to four years of worker classifications are at risk.
Businesses who hire workers and classify them as independent contractors should review those classifications from 2015 through today to determine if any workers should have been classified as employees.
The Dynamex decision and Assembly Bill 5, while having wide-reaching consequences for state employment law, do not impact federal employment law or federal tax classifications.
KCoe People, the HR consulting arm of K·Coe Isom, can help evaluate your workforce and determine what changes in employee classification are needed in light of these changes. Contact Danielle.McCormick@kcoe.com with questions.