California Bill Redefines Standards for Employment Status

A bill that would extend labor protections and employee benefits to many workers previously considered independent contractors is making its way through the California Senate. If it passes, it will affect associations that use freelancers in the state.

A groundbreaking labor bill is making its way through the California Senate that would redefine what it means to be an employee in the state.

Passed by the California State Assembly in May, AB 5 would extend labor protections and employee benefits like healthcare, overtime, and minimum wage to many workers formerly considered freelancers or independent contractors.

If the measure passes the Senate, nonprofits and associations that use freelancers in California may need to reclassify these workers as full-time employees entitled to employee benefits. This would apply not just to associations headquartered in California, but any U.S. association that employs contractors in California.

The legislation was written by Assemblywoman Lorena Gonzalez, who is a labor advocate and a candidate for California Secretary of State in 2022. Gonzalez said she wants to codify a 2018 state Supreme Court ruling that said contract workers at delivery company Dynamex were entitled to the benefits of regular employees. The court decision created the “ABC” test to help classify workers in California.

Though it would impact a broad range of industries, Gonzalez’ primary target in creating the legislation are app-based employers like Uber, Lyft, Postmates, and others that classify their drivers as freelancers and don’t provide employee benefits like sick time or health insurance.

“Big businesses shouldn’t be able to pass their costs onto taxpayers while depriving workers of the labor law protections they are rightfully entitled to,” Gonzalez said when the bill passed the Assembly earlier this year. “This legislation is an important work-in-progress to provide certainty to California’s businesses, provide protections for California’s workers, and guard the taxpayers from subsidizing unscrupulous corporations.”

If passed, AB 5 will make the “ABC” test the standard for determining employment status in California. The test is far stricter than federal regulations for determining employment status. It states that a worker can only be considered an independent contractor if they are free from the “control and direction” of the company they work for; performing work that is “outside the course” of the company’s usual business; and have their own independently established trade, occupation, or business.

It’s expected the California Senate will take up AB 5 in September.

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Chris Vest, CAE

By Chris Vest, CAE


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