Proper classification of independent contractors and employees has never been simple, and the passage of California’s new gig law Assembly Bill 5 (“AB5”) ensures this issue will continue to pose challenges for workers and businesses alike. AB5 took effect on January 1, 2020. While the full impact of this new legislation is yet to be seen, there are legitimate concerns about how this law will impact musicians and other independent artists.
What is AB5?
AB5 is the legislative result of the Dynamex decision, whereby the California Supreme Court employed a three-part test to determine employment status and ultimately concluded that Dynamex delivery drivers were employees and not independent contractors. Dynamex Operations W. v. Superior Court, 4 Cal.5th 903, 942 (2018).
To support workers’ rights and expand on the Dynamex ruling, AB5 was signed into law in September 2019, effectively requiring companies to classify independent contractors as employees, with a few exceptions.
Requirements Under AB5
AB5 adopted the three-part Dynamex test and requires the hiring entity to demonstrate the following to qualify a worker as an independent contractor:
- The worker is “free from the control and direction of the hiring entity in connection with the performance of the work”;
- The work performed is “outside the usual course of the hiring entity’s business”; and
- The worker “is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.”
AB5 provides exceptions for more than 50 businesses and professions, including physicians, dentists, psychologists, lawyers, accountants, commercial fishermen, real estate agents, insurance agents, financial brokers, hairstylists, and travel agents. Freelance photographers and journalists are exempt if they do not contribute more than 35 pieces to a company per year. There is an exemption for “fine artists,” but that term has not been clearly defined.
Practically speaking, AB5 will significantly increase costs for “hiring entities” that are now required to follow labor laws (e.g., meal and rest breaks); provide employment benefits like minimum wage, overtime pay, expense reimbursement, workers’ compensation coverage, and unemployment insurance; deduct taxes and issue a W-2.
What Does This Mean for Gig Workers?
Proponents of AB5 believe the law will lead to enhanced protections for workers, including wage protections and increased bargaining power.
However, AB5 presents multiple concerns for gig workers and entire industries, especially the music industry and other creative arts. Small companies with limited resources will be unable to compete with larger organizations because their limited incomes will be insufficient to comply with AB5’s requirements. Some fear AB5 will ultimately stifle creativity and force the migration of talented artists and entire industries outside of California.
Moreover, one significant upside of gig work is flexibility; if classified as an employee, workers may lose the ability to manage their schedules.
Becoming a “hiring entity” poses other problems. For instance, imagine you are a musician hired to play at a private party; you contact other musicians and offer to pay them to play with you. Are you a “hiring entity?” Can this issue be avoided by having the party planner, host, or other middleman hire all the musicians independently? Independent contractors will undoubtedly be looking for ways to avoid being a “hiring entity” and should take great care to review all contracts to ensure you maintain your status as an independent contractor.
AB5 has yet to face judicial scrutiny. However, there is no question that AB5 will limit who qualifies as an independent contractor, and the law will be challenged in court. AB5’s language is ambiguous, and there is room to argue that it conflicts with federal law because it excessively burdens interstate commerce by impacting industries that cross state lines.
The Ottinger Firm has extensive experience representing California gig workers. With offices in Los Angeles and San Francisco, our team of California employment attorneys is prepared to assist you with questions about your employment status and the effects of AB5. Contact us today for a free consultation.