California Assembly Bill 5 (AB5)

California Assembly Bill 5 (AB5), also called the gig worker bill, required companies that hire independent contractors to reclassify them as employees, with certain exceptions. The primary aim of this bill was to regulate companies that hire gig workers in large numbers. A few examples of such companies include Uber, Lyft, and DoorDash. It soon became necessary for companies based in California and for companies that have California employees or workers.

The bill was codified into law that put the burden of proof on companies as to why workers employed by their company should not be treated as employees.

A law relating to this issue was very important to bring up because the workers or freelancers in the company, which is based in California, were denied benefits that were offered to regular employees. The interesting fact is that even if the bill was for the benefit of workers, it was also opposed by some of them and the companies also opposed this bill.

Despite facing a lot of criticism and opposition from the companies, this bill was brought into effect on January 1st, 2020, after making some amendments.

Background

The evidence of this bill can be traced back to the Dynamex Operations West, Inc. vs Superior Court case in the year 2018. In this case, the court said that companies should define what a freelancer is and also held that the burden of proof would be on the company to prove that an employee in their company is just a freelance worker and not an employee, and hence he must not receive the benefits that a regular employee of the same company gets.

It was this decision of the court that gave rise to the need for a state law in this regard. Therefore, after the decision, the decision was codified in a bill and introduced and became a state law. In the ruling, an ABC test was introduced and included in AB 5 as a law.

ABC Test

ABC test was a test that Dynamex used to determine whether a worker is an employee or not and whether he should be given the benefits mentioned under California wage orders. The ABC test, incorporated in AB 5, was in the same original language Dynamex used. The AB5 bill considers freelance workers to be an employee until the business that hired them proves each part of the ABC test.

The ABC test lays down three conditions that need to be proved by the hiring business to prove that the worker is not an employee and only an independent contractor. These three conditions are as follows:

• The business that hired the person has no control or direction over the performance of the work or in any other way.
• The work done by the worker is not in the course of the usual business activities of that entity.
• The person performing the work is his customary business, and it is his trade or occupation established by him independently.

Enforcement

Assembly Bill 5 grants some officials power to enforce AB 5 and to punish an employer who has committed an offence under the law by misclassifying the employees as freelance workers. The officials who have granted these powers under the bill are:

• Attorney General of California
• With the consent of the district attorney, a city attorney of a city or county
• The city prosecutor of a city with a full-time city prosecutor
• The city attorney of a city, the population of which is more than 750,000 persons.

Exemptions under the Law

When the law was first introduced, there were some major professions like doctors, lawyers, dentists, accountants, insurance agents, hair stylists, and real estate agents, which were granted an exemption under the AB5 law. In fact, more than a hundred other professions were granted exemption in the law.

For professions who were exempted from the strict ABC test, these exempted professions were required to pass another similar test, i.e. the Borello test. In the Borello test, the factor used to determine whether any worker is an employee or not was to check how the hiring company controls the workers who have been hired in terms of the work they perform and how the work is performed.

Many other groups and some unions of freelancers tried and appealed to include them too in the list of exemptions.

As a result, it became difficult for companies to hire workers as freelancers, and sometimes even workers did not want to be regular employees of the organization. So, many companies that are mainly dependent on freelancers also appealed to include them in the list of exemptions from the bill.

Many cases were filed before the court to update the list of exemptions, and two landmark cases are AB2257 and Proposition 22.

AB2257

On September 4th, 2020, the governor named Gavin Newsom, signed AB2257, which was passed by the California legislature because of intense controversies surrounding the AB5 bill. Under this, a completely new list of exemptions was added for freelancers.

Many creative professionals like photo editors, photographers, videographers, and cartoonists were also added to the new exemptions.

Some criteria used to consider whether someone is a creative freelancer or not were also eliminated; for example, if someone is submitting content less than 35 in numbers, then they will be considered a freelancer.

After this, around 109 categories of workers were exempted from the ABC test. Still, many workers for gig-economy companies, including Uber and Lyft, were not exempted.

Proposition 22- Gig Drivers

It is to be noted that AB 5 was not accepted by all the companies based in California, and some of their companies, like Uber, Lyft, and Door Dash, were worried about considering their drivers as employees and providing them with the same benefits which an employee receives.

Therefore, such companies continuously opposed AB 5, saying that if they consider their drivers as employees, then it would lead to an increase in the prices for the services they provide to their customers and which would not be in the interest of the consumers.

These companies spent millions of dollars so that the gig drivers could be exempted from AB 5 and also started convincing the consumers that the law which is forcing them to consider the gig drivers as employees is not a good law and not in favour of consumers too as the consumers may also need to pay a higher price for receiving the services from such companies.

When in November 2020, Proposition 22 was added to the California ballot, the voters of California voted in favour of it, and it was passed immediately. The effect of this was that it reversed all the effects of AB 5, which was forcing the companies like Uber and Lyft to consider their gig drivers as their employees.

What's more surprising in the passing of the Proposition 22 was that many gig drivers themselves voted for 'yes' as they were scared that if the companies were forced to consider them as employees, then there are chances that retrenchment on a large scale could be seen in the companies and because of that they may lose their jobs.

But, it should be noted that Proposition 22 does not deny all the benefits which a gig worker receives. Instead, it has the provisions of providing certain benefits to the gig workers as well, which was also one of the reasons why gig drivers themselves voted for 'yes' to pass Proposition 22.

The benefits which were offered in Proposition 22 to the gig workers were minimum hourly wage, health insurance subsidies, disability, and other medical coverage.

Is it possible that AB 5 and Proposition 22 can coexist?

The companies that were targeted by AB 5 were not bound to comply with the primary provisions. At the same time, because of the acceptance of Proposition 22, gig drivers or the persons like the delivery boy who were working for the companies like Uber, Lyft, and DoorDash can be considered independent contractors and not employees.

But, freelancers who were involved in some other kind of work in any other company were not exempted by Proposition 22, and they were required to follow the ABC test of AB 5.

And therefore, it would be no wrong to say that - "yes, both AB 5 and Proposition 22 can coexist".

Is there any change needed in AB 5?

When AB 5 was codified as law, the main aim or objective of the law was to protect the interest of the weak workers and also to make sure that they receive proper taxes from the freelancers working in different companies by considering them as employees.

The problem now arises is that after the introduction of Prop 22, the main objective behind bringing up the AB 5 is now being defeated, and the freelance workers employed in any company face difficulties, which is the exact opposite of the objective of the AB5.

AB5 is continuously being amended, and many other works are being added to the exemption list. Therefore, it has become more confusing than before. Thus, it is important that necessary amendments should be made to the AB5 to make it less complex and beneficial for freelancers and other workers.