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September 12, 2019

Controversial Independent Contractor Bill AB 5, Passes State Senate

The California Senate has passed AB 5, which codifies and expands on the “ABC” test for determining whether a worker should be classified as an employee or an independent contractor.  The new test was adopted by the California Supreme Court’s Dynamex decision in 2018.  In Dynamex, the California Supreme Court held that under this ABC test, workers are presumed to be employees unless all three of the following conditions are met:

(A) The individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and

(B) The service is performed outside the usual course of the business of the employer; and

(C) The individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.

Under AB 5, the ABC Test would be applied not just to Wage Orders (as is the case under Dynamex), but to all the provisions of the Labor Code and Unemployment Insurance Code as well. Whether the ABC test would be used under the Workers’ Compensation and Insurance Codes has been deferred by the legislature for future consideration. And while the bill creates several exemptions for certain classes of workers, but agriculture is not included.

AB 5 has been approved by the Assembly on concurrence and is en route to Gov. Gavin Newsom. The governor has said he will sign the bill, despite vehement opposition from industry groups who say AB 5 will damage the state’s economy, and will hurt small independent businesses and major gig companies such as Uber and Lyft, alike.