A New California Law Signals a New Beginning for Contract Workers

Later this week, California’s Assembly Bill 5 goes into effect—a milestone accomplishment that has sparked nationwide interest to ensure that all individuals who work for a boss enjoy a fundamental set of rights and protections. AB5 clarifies a process, called an “ABC test,” that holds employers accountable to workers who rightly should be considered their employees. The bill is a powerful first step as additional states such as New York seek to build on California’s landmark legislation.

AB5 is a win for businesses who play by the rules and are at a competitive disadvantage against employers who flout the law. It’s a win for the California government, with a new revenue stream paid by employers for much-needed social insurance funds. Most importantly, it’s a landmark victory for workers who organized to restore fundamental labor rights that were taken from workers in low-wage jobs across virtually every industry in the state.

How Employers Cheat the System

At its best, work should allow people to provide for ourselves and our families and to have the stability necessary to enjoy our lives. Laws should enable people to work with dignity and with the ability to come together to improve their working conditions.

The law recognizes that there are different kinds of workers. There are those working for a boss that sets the terms of pay and how work should be done—they are “employees,” representing the vast majority of workers in our country. And then there are those who set their own rates and working conditions—they are “independent contractors.”

Our labor and employment laws reflect that distinction. They require employers to comply with baseline labor standards—like the right to collectively bargain, minimum wage and overtime, health and safety, and anti-discrimination protections—for their employees but not for independent contractors.

To evade complying with these laws, bad actor employers illegally label their workers as independent contractors. These so-called “independent contractors” are no different than most workers. Unlike real freelancers—who can set their own rates, turn down jobs, and negotiate with clients—they have a boss.

Employees cannot freely accept or reject jobs. Someone else controls their working conditions. And because many states use confusing and easy-to-manipulate tests to determine who is an employee, employers are able to get away with dispossessing workers of critical rights and protections.

The ABC Test is the Gold Standard Solution

As California has done, the best way to stop this willful evasion of accountability is an “ABC test” – a simple test that starts with the presumption that if someone performs work that is essential to the core purpose of a company, that worker is presumed to be an employee of the company.

This presumption can be overcome if the employer can show that the individual is free from the business’s direction; their work is outside the employer’s usual course of business; and that they regularly hold themselves out as an independent business in that field of work.

The ABC test is the only method to address misclassification that uniformly raises the floor for workers without jettisoning other critical rights. It’s the gold standard to dramatically lift the wages and benefits of janitors, nail salon workers, construction workers, landscapers, homecare workers, drivers, delivery workers, and many others in low-wage, immigrant-dominated industries.

The ABC test ensures that workers in these sectors—where misclassification is common—are paid at least a minimum wage. It ensures that when someone loses their job, they’re eligible for unemployment insurance benefits. If they’re hurt on the job, they can get compensated for the injury. And if they fall ill or need to care for loved ones, they can receive paid sick and family leave.

Building on California’s Wins

AB5 is a watershed moment in ensuring all workers can access the rights they are entitled to, especially in a moment when powerful, market-shaping gig companies have clung to a business model predicated on not paying companies’ fair share. As other states like New York seek to hold employers accountable, they are well-positioned to build on California’s wins.

AB5, and all ABC test legislation, must balance two interests: To hold employers accountable to their workers who have been dispossessed of core labor rights; and to maintain the work opportunities for those individuals who truly are their own boss. That’s done through job-specific exemptions, which apply a more flexible balancing test for individuals in specific occupations where there is typically less exploitation.

It can be a fine line in creating occupational exemptions. In the weeks before AB5’s official implementation, some news outlets reported that companies will eliminate freelance positions in response to the bill. For example, on December 16, 2019, Vox Media’s SB Nation announced that, to comply with AB5, it would stop working with California-based freelance writers and create new full-time employee positions.

Amid some of the premature fearmongering on that particular exemption, it’s worth noting that companies still can accept up to 35 publications from a California-based freelancer every year.

In New York, a coalition of workers, unions, and advocates, including the National Writers Union, will propose similar legislation that exempts freelance writers and other professionals outright. It’s an important sign that ABC test legislation can evolve to ensure it is meeting workers’ needs.

California’s AB5 is a landmark win that helps ensure that workers are treated fairly and that employers live up to their obligations. As states like California and New York seek to hold employers accountable to their employees, it’s no surprise that employers are inventing new ways to skirt the law. If anything, it underscores the need for a national landscape in which workers in every state enjoy the same set of rights and protections under an easy-to-understand framework.

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About the Author

Brian Chen

Senior Staff Attorney, National Employment Law Project

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