What Associations Should Know About California’s AB 5
California’s “gig economy” law has created a lot of questions for organizations that hire independent contractors in the state. Changes may be coming, but in the meantime the measure sets out some clear guidelines, an employment lawyer says.
California’s Assembly Bill 5 (AB 5), a measure passed last year that codifies standards for whether workers are classified as employees or contractors, has created confusion and concern at a lot of organizations, including associations.
Under the law, which took effect January 1, many workers who had previously been considered contractors must be treated as employees, meaning the employer must extend to them labor protections and benefits that apply to traditional employees. The measure has particularly affected fields that rely heavily on contract work, such as journalism and the arts, and led to lawsuits, some of which associations are taking part in.
Many affected organizations are pinning their hopes on changes that may be made to the law. Andrea R. Milano, a lawyer with the employment and labor practice at Pillsbury Winthrop Shaw Pittman LLP, says that while amendments may come, that process will take some time.
“I don’t think [AB 5] is going anywhere. I certainly don’t think it’s going to be repealed,” she says. “But I think there will be more to come, and whether that is more exclusions or further guidance, I think there will be more guidance that we receive. I don’t know that this is its final form forever.”
Already, signs of movement are appearing. Last week, the primary author of AB 5, Assemblywoman Lorena Gonzalez, added amendments to AB 1850, a proposed update to AB 5 that would revoke the law’s most controversial elements related to freelance writers. The bill would remove a cap on the number of articles freelancers can write each year—the most contested aspect of the law—while requiring that contracts specify rate of pay, a schedule for payment, and an agreement regarding intellectual property rights.
Understanding the Rules
Milano notes that the rules in California establish a three-part test to determine whether a worker is a contractor rather than an employee: The worker is free to perform services independently; the work being performed is outside the standard course of an organization’s business; and the worker has an established business in which they do the work.
“So assuming that the contractor meets all three standards, there won’t be a change,” Milano says. “And you can still contract with people for discrete services that are not part of the association’s primary business.”
As an example, she cited marketing consultants with their own established processes with whom your association has a project-based relationship. Additionally, she notes that limited gig-based work wouldn’t be affected by the law, especially in areas outside of your association’s basic function.
“That’s why you hire event planners, but that’s not what you do on a day-to-day basis,” she says. ”You’re running the association, so you hire someone else to do all of that work that is very important to you, but it’s not your central business.”
If elements of your independent contractor-based work do not pass the three-part test, those workers need to be reclassified. “If you look at it carefully and you want to follow it correctly, then you’re going to probably reclassify people as employees, and there is a cost associated with that,” Milano says.
No More Gray Areas
California’s law was a wake-up call, and other states are considering similar legislation. Bills pending in New York and New Jersey may replicate the three-prong test.
While Milano says that no other state is taking on the issue as aggressively as California, the Golden State’s status as a leader on employment law issues means that the state will be used as a model. Whatever happens, it is likely to have a long-term effect on the way that independent contractors—an employment status initially meant for task-based workers like plumbers and roofers—are managed in a gig-based world.
“California’s test eliminates the gray area. They say there’s three factors, and they’re hard to meet,” Milano says. “And effectively, those three factors go back to what independent contractors were originally meant to be when it was first thought up.”
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