What AB5 Means for You

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California’s Assembly Bill 5 (AB5) passed on January 1.

AB5, a bill designed to protect independent contractors, took effect in California on January 1. Details are still being sorted out as many gig workers find themselves unable to work.

Sheryl Schane, CMM, an independent meeting and event planner, said she has not been hired to plan an event since California’s Assembly Bill 5 (AB5) passed on January 1. “I am an LLC but the risk for misclassifying someone is very high, and the law is badly written, so human resources legal departments do not want to deal with it. Instead they are flying in my colleagues from surrounding states to execute the logistics for their California meetings.”

“I’m also hearing that many companies are looking at holding meetings outside California rather than deal with the complications of hiring the many independent contractors that make a meeting possible, from Uber drivers and musicians to videographers and planners.”

AB5 is designed to protect employees from being misclassified as independent contractors by employers seeking to avoid paying for benefits. Planners as well as the service providers that they hire may be viewed as employees under the new law, even for work that involves just a few hours or days.

ABC’s of AB5

Under California’s AB5, anyone providing labor or services for pay is considered an employee unless they pass all three components of the “ABC” test:

A: The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of work and in reality.

B: The person performs work that is outside the usual course of the hiring entity’s business.

C: The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Douglas H. Wheeler, founder & principal at Summit Performance Group, said he feels prepared. “For some time, I’ve insisted that anyone we hire must have a business license, a business name and proof of that along with liability insurance so I can be sure they are legitimate entities. That way, if the IRS questioned a 1099 status, we could say yes, this is a separate entity.”

But the future is unclear for interpreters, musicians, independent meeting professionals and many others who choose to be gig workers. Some gig economy companies are planning a ballot initiative for November. “In the meantime, one thing is for sure: AB-5 will keep us employment lawyers busy in the coming year,” said Nancy Yaffe, partner at Fox Rothchild, LLP.

California’s AB5 may be a harbinger of things to come. New Jersey and New York have similar legislation on their dockets and other states are expected to jump on the bandwagon.

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