Take Your Medicine California: AB5 is good for you


Dynamex Changes Everything

For those who don’t closely follow advances in employment law, a recent California Supreme Court decision, Dynamex Operations West, Inc. v. Superior Court of Los Angeles. perhaps surprisingly to some, sided with alleged independent contractors who worked at a courier company called Dynamex. It said, based on a three-part “ABC test”, the workers should have been considered employees of Dynamex.

The Law in CA is Adapting to the #GigEconomy

The California legislature has chosen to refine the Dynamex decision by passing AB5, which Governor Gavin Newsom signed into law on September 18th.  AB5 uses Dynamex’s three-part test, otherwise known as the ABC test. Using this test, a worker is only considered an independent contractor if he or she meets all of the three parts of the test. Of the A, B and C parts of the test, the ‘B’ test is the most important one.

The B test requires that a person’s work be “outside the normal business activities of the hiring company.”

An example of the “B” test:

For example, if a ramen shop hires somebody to do bookkeeping, that person is performing work outside the company’s “usual course of business” and can be an independent contractor. But, if a ramen shop hires someone to make noodles, the argument is much harder to make, because a ramen shop’s primary business is to make and sell noodle soup.

Currently, almost every large company uses independent contractors to some extent.  Businesses throughout California, not just the gig economy players, will be affected in some way by AB5

This Change is Good for CA workers

This result is good.  It is good, because workers in today’s gig economy typically do not realize the risks they are running to work a job that might barely meet minimum wage standards. Those in the “ride-share” industry often find themselves in the position of purchasing a new car, insurance and other associated costs, only to discover that they are not covering the costs they have laid out in order to participate.  Add to that the assumption of risk for accidents, the lack of health insurance, or unemployment insurance, should they themselves be injured, and you have a situation where the “independent contractor” is left holding the bag after contributing to the employer’s profits and reaping none of their own.  These drivers are integral to the “ride-share” business model, but they are at the mercy of billionaires who have made tremendous fortunes by cutting them out of the employee role and misclassifying them as “contractors” to avoid having to pay for social security, medical insurance and the like.

Gig workers rarely understand that, under the current system, they should carry commercial insurance.

Gig workers rarely understand that, under the current system, they are responsible for taxes as a separate business entity, in the eyes of the IRS.

California corporations understand that most gig-workers don’t understand the nature of being a contractor. And that’s the way they want it. They are willing to let the people who are making money for them be completely exposed and vulnerable, just because if they did anything different, they’d either have to pay more for getting the work done or they wouldn’t be able to get enough workers.

The Takeaway: It Will be Bumpy at First, But It’s Worth It.

AB5 had to happen, so that these companies can be held accountable for how they utilize people to do their work for them. As it plays out, the law will likely be adjusted to protect the workers and allow businesses to clarify the status of those who are contributing to their companies.  It may be bumpy at first, but we will adapt, and California’s workforce will be the better for it.

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