ALERT! CA Governor Newsom signs new law TODAY making it harder to use independent contractors

By Sarah Smale

Just hours ago, Governor Gavin Newsom signed AB-5 into law, which is designed to: 

“[E]nsure workers who are currently exploited by being misclassified as independent contractors instead of recognized as employees have the basic rights and protections they deserve under the law, including a minimum wage, workers’ compensation if they are injured on the job, unemployment insurance, paid sick leave, and paid family leave.” 

This new law makes crystal clear that California will NOT tolerate misclassification of employees as independent workers. The new law goes so far as to say the ”misclassification of workers as independent contractors has been a significant factor in the erosion of the middle class and the rise in income inequality.” Wow!

To be sure, the State of California via AB 5 has made a clear declaration of public policy–the state intends to protect workers who miss out on basic protections as a result of improper classification.

The ABC Test

As a quick refresher on the rule, Dynamex v. Superior Court, a 2018 court case, already established the three-factor “ABC” test for claims arising under the wage orders and Labor Codes. The ABC test assumes the worker is an employee. To show the relationship was actually that of an independent contractor, the hirer must prove the worker:

  • If free from the control and direction of the hirer as to performing the work (both under the contract and in fact);
  • Performs work outside the usual course of the hirer’s business; and
  • Is customarily engaged in an independently established trade or business of the same nature as that involved in the work performed.

In other words, most true independent contractors will be folks like a bookkeeper, the company who is hired to construct a building, or others providing a service different from what the farmer or cannabis operator does, which is something the contractor also does for others.

For farmers looking to bring in temporary help for the upcoming harvest–this distinction is critical. Even if someone will only be at the farm a few weeks, if they are engaging in work central to the cultivation operation, this is arguably an employment relationship, particularly if the farmer is overseeing the work.

Put ‘Em on Payroll

Wage claims are not claims a small business can afford to lose–there are multiple penalties for worker misclassification, ranging from a straight-up first-offense penalty of $5k-$15k for willful misclassification, to paying all the taxes that should have been withheld. Misclassification almost always means the hirer failed to maintain records required for all employees, and frequently results in a failure to ensure proper meal/rest periods and overtime policies.

The fallout from worker misclassification is a real and serious business risk–a risk no wise operator should take. And as of today, the State of California has made it abundantly clear that misclassifications are going to be taken more seriously than ever before.

~Sarah Smale
Co-Founding Partner
Origin Group Law LLP

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