California Assembly Bill 5
AB 5, short for California Assembly Bill 5 and also known as Gig Workers Bill, took effect on January 1, 2020. Others refer to AB 5 as Gig Economy Law. AB 5 was born following a landmark Supreme Court California case, Dynamex Operatons West, Inc vs. Superior Court of Los Angeles. A pair of Dynamex drivers filed a lawsuit against Dynamex when the company changed their employment status from regular employees to independent contractors. The court ruled in favor of the drivers.
Pay, rights and legal protections are the biggest problems of gig workers for so long. There is a tendency that gig workers get overworked at their jobs since they are not protected by labor laws. By classifying gig workers as independent contractors, they give these companies a chance to care less about the people who for their businesses.
AB 5 bill categorizes the ABC test. The ABC test is used to prove that a worker is an independent contractor. Most industries must use the ABC test in classifying a worker as an independent contractor and not an employee.
The test has three assessments to decide a worker’s classification:
- (A) that the worker is free from direction and control from the hiring unit concerning performance at work and in fact;
- (B) the worker’s service is performed outside the usual course of the hiring unit’s business and
- (C) that the worker is customarily engaged in an independently established trade, profession or business of the same nature as that of the hiring unit.
Who do we call gig workers? These are individuals who work for temporary positions or short-term jobs regardless if they sign a contract or not. The term “gig” is a colloquial word for “engagement” and is often used for and by people in the field of music and the arts. Gig workers are independent contractors and may also be freelancers, project-based workers, and part-time hires or any workers who are not classified as employees. Gig workers manage their own time but they are not entitled to certain benefits like employee health insurance or retirement package.
Under AB 5, not all professions and businesses are covered. There are 50+ exemptions and among them are doctors, attorneys, insurance agents, lawyers, accountants, real estate brokers, hairstylists, architects, engineers, some business-to-business contractors, and businesses through referral agencies.
Like many other laws in the past, AB 5 was met with controversies. AB 5’s intent was to amplify basic legal protection to workers who have been considered independent contractors. The protection can work on gig workers’ favor. This includes the right to basic health care and the right to earn a minimum wage and the most notable inclusion, the right to join unions. There are a lot of employers and business owners, however, who are not happy about AB 5. Having an employee is generally more costly compared to hiring a gig worker. When businesses classify workers as employees, they have to pay taxes including the 6.2% salary and wages for Social Security and the 1.45% for Medicare apart from workers’ compensation and other basic employee insurance. Because of the new law, there is a possibility of small businessmen to end up closing their shop or take the business elsewhere due to limited staffing budget.
So, how has AB 5 affected California’s gig workers? Many individuals from across the gig economy sector argue that AB 5 has a much more positive effect on delivery drivers, truck drivers and drivers for ride-sharing services like Uber and Lyft. Let us look at the pros and cons of gig workers who are classified as employees.
- Gig workers can now have pensions, holidays with pay, sick leaves and other benefits granted to an employee under the California state law. These worker’s basic rights were only granted to employees and that substandard benefits were usually given to gig workers.
- Gig workers will now be paid hourly instead of per project or job. Having an hourly minimum wage means more secure finances. They do not have to wait for a longer period for the next job to come in.
- Gig workers can start planning their future through more fixed income. It’s harder for people with less job stability to get approved for loans and mortgages. Once lending firms can see a paper trail of financial documents, your approval rating will likely be positive.
- Gig workers can lose their potential earnings because employers find it difficult to give in to the demand of AB 5. Take for example SB Nation, a sports blogging network operated by Vox Media. The network had to choose the most convenient way for the business — not work with California-based independent contractors. Before AB 5 took effect, the network fired over freelance 200 writers.
- Gig workers can lose time freedom. If a gig worker is used to work whenever he or she pleases then the transition from an independent contractor to an employee might create an impact especially if one is in the gig economy for quite some time. Some gig workers do not wish to be employees because of other errands they have to do in between their daily lives but they have no choice because their employers are expected to follow the law.
- Gig workers can be misled if they don’t educate themselves on what their actual rights are against their actual wages. This is particularly true to gig workers who are in the red-light district. Many of these works are busy with their dancing and happy with making so much money that they don’t question their rights. Under AB 5, they have the right to work protections but at the same time, they are not prepared with a decrease in their daily earnings.
Since AB 5 is new, there may be amendments that will be done to make it a win-win situation for the employers and the employees. The law will continue to face challenges among supporters and non-supporters and we all should be updated on how it progresses as the days go by.
Want more clarity if you plan to take up gig work and need help? Or do you have questions or suggestions? Feel free to contact us and we’ll get back to you in no time!