What does the passage of AB 5 mean for your California business? The short answer is, it depends.
In its April 30, 2018 Dynamex decision, the California Supreme Court replaced the various factor tests (for determining whether an individual was an employee or independent contractor) with what is known as the ABC test. The California legislature recently passed AB 5, which to a large degree codified Dynamex.
A person should be classified as an employee rather than an independent contractor if providing labor or services for pay unless all three of the following are true:
A. The person is free from the control and direction of the hiring entity in connection with the performance of the work, both per the terms of the contract itself, and in fact.
B. The work performed is outside the usual course of business of the hiring entity.
C. The person is customarily engaged in the type of work performed as an independent trade, occupation or business.
Note that this is an all or nothing test- all three must be true, or the individual is an employee under the law. There are several exceptions to this general rule, each with its own requirements. In several instances where the new ABC test is exempted, the old rule under Borello is applied. Borello uses a ‘control of work’ test, which is loosely mirrored in “A” of the ABC test. Borello applies to most licensed professionals, while there are specific provisions for a wide variety of roles, from HR administrators to fine artists, and from cosmetologists to contractors licensed by the CSLB.
The characterization of a person as an employee affects the employer's obligation to carry workers compensation insurance, withhold and remit payroll taxes, and provide other worker protections required under the law. The potential cost of getting it wrong makes it worthwhile to take the time to talk with your business attorney before the law takes effect January 1, 2020.
 Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903
 S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341
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