Very recently, California’s governor signed into law a piece of legislation that dramatically reshapes how employees and independent contractors are defined.

If your business employs even 1 worker that it classifies as an “independent contractor,” it is very important that you understand this new law.

California Assembly Bill 5, nicknamed the “gig worker bill,” codifies a three-pronged test that must be used in determining a worker’s classification as an employee.

Under this test, a worker is presumed to be an employee and the burden is placed on the employer to demonstrate their independent contractor status.

To do so, the worker must satisfy ALL THREE criteria of the test:

  1. The worker is free from control and direction in the performance of services;
  2. The worker is performing work outside the usual course of the business of the hiring company
  3. The worker is customarily engaged in an independently established trade, occupation, or business.

The implications are definitely far-reaching. Once classified as employees, your workers would be entitled to the protection of California’s labor laws and the applicable wage orders requiring, among other things, payment of minimum wage, maintaining unemployment insurance; maintaining workers’ compensation insurance, providing for expense reimbursement, and providing for legally mandated sick days and medical leaves.

AB5 is lengthy and complex. Indeed, many professions and occupations received carve-outs, while many occupations that had previously been treated as independent contractors did not.

It also remains unclear whether the new law applies retroactively. If it does, all employers will need to audit their prior employment practices.

With the advent of this new law, it is very important for all employers to reassess all workers that they have classified as independent contractors. If you’re not sure, reply to this email and we’ll take a look at your situation specifically.

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