Business Law

Understanding California’s New Contractor Law, AB 5

By November 15, 2019 February 20th, 2020 No Comments

California’s Assembly Bill 5—known as AB 5, for short—has been all over state and national news since being passed by the state legislature and signed into law this September. And with good reason: AB 5 is shaping up to be a major disruption to the sharing-economy companies like Uber and DoorDash that have been disrupting their own industries for the last ten years. AB 5 updates the requirements for classifying employees as independent contractors with the specific intention of redefining these contractor-based companies’ workforces as full-time employees. However, as a recent Los Angeles Times report points out, the effects of this new law will not be limited to big tech companies.

Classifying Independent Contractors vs. Full-Time Employees

There are many benefits to employers for using contractors instead of full-time employees where possible. Companies do not need to provide benefits like healthcare or workers’ comp insurance for contractors, nor are they responsible for paying Social Security and Medicare taxes on behalf of the contractors in the way they would need to for full-time employees. The Times estimates that full-time employees cost 20%–30% more than contractors for comparable work.

The new law states that contractors cannot perform tasks that are essential and regular functions of the business. Under AB 5, contractors must be independently employed performing similar work and employers cannot specify how or when contractors are to perform their labor. This would apply not only to drivers for services like Uber and Lyft, but also to contractors in a variety of industries like trucking and translating.

Legal Guidance for California Businesses Complying with AB 5

Although AB 5 outlines a number of exemptions for certain types of contractors—including doctors, writers, real estate agents, lawyers, and more—many other industries are lobbying for their own carve-outs. This has led to a great deal of uncertainty about how this new law will actually be applied once it goes into effect in January 2020.

California businesses would be well-advised to consult with business attorneys to make sure that their employment practices are in compliance with these new and changing regulations. At the Law Offices of Brian A. Newman, we’re committed to helping Torrance and Los Angeles County businesses stay up-to-date with the latest relevant laws. We’ll take the time to understand your business and develop a strategy that fits your needs. Call (424) 275-4014 today to schedule a free consultation.