AB5 – MY contractors are exempt from the new rules, right?

I was talking to an excellent employment lawyer friend yesterday (Robert Nuddleman – who has a great blog and actually posts more than once a year!).  He and I agreed that we are getting a LOT of questions about AB5. The most common questions I am getting about AB 5 and its application to workers are:

  • Can’t my workers fit under an exemption? Come on!
  • What’s the big deal if they don’t and I keep paying them as 1099 contractors?
  • Are any City Attorneys/DA’s really going to enforce the new rules, when PAGA is so effective?

Well. . . let’s work backwards:  Yes!  City Attorneys and District Attorneys are going to bring actions: on February 25, 2020, San Diego City Attorney Mara W. Elliott obtained a preliminary injunction against Instacart, a multi-billion-dollar grocery-delivery company, for not complying with the worker classification standard established in Dynamex (and codified by AB 5).

It is very important to analyze any workers you have that are not being paid as W2 employees. Even if it seems outrageous to you – and even if the worker wants to be paid as a 1099 contractor –you need to know your risks.

Organizations must confirm that an independent contractor is really an independent contractor, or suffer the consequences – unpaid wages, unpaid employment taxes, PAGA and class action claims (Lions! And Tigers! And Bears! but more dangerous).

AB 5 codified the California Supreme Court’s 2018 Dynamex “A-B-C test” and then took the whole thing “up to an 11” when it comes to applicability.  Under the A-B-C test, a worker is an employee unless:

  • she is free from the control and direction of the hirer in performance of the work; and
  • she performs work that is outside the usual course of the hiring entity’s business; and
  • she is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

Each of these prongs is difficult and can derail the classification. Think you are just acting as a referral service for others who do the same work as you (with a little kick back)? Well, unless you fit under a specific business, you must fit under the A-B-C test, and if you are referring people to others who do the same work as you, the “B” prong cannot be met.  Ugh!

Now, more than ever, you need to analyze your classification of workers. Need help? Contact me! Jdebacker@mstpartners.com

 

 

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