Everything You Need to Know About California’s AB5 Law

California's AB5 Law - Independent Contractor Classification

Worker misclassification is a significant problem in various industries throughout California. However, in 2019, the California legislature passed a bill that protects employees from being misclassified as independent contractors and unfairly denied the employment benefits to which they’re entitled. Effective as of January 1, 2020, Assembly Bill 5, AKA AB5 Law, codified the California Supreme Court’s decision in Dynamex v. Superior Court — and adopted the “ABC test” used in the case to determine whether a worker has been misclassified.

What is the Difference Between an Independent Contractor and an Employee?

In understanding California’s AB5 law, it’s vital to understand that there are two worker classifications in California — independent contractors and employees. Each classification is completely distinct from the other. Differentiating independent contractors and employees can often be confusing and lead to misclassification by employers — whether it is inadvertent or intentional.

An independent contractor is an individual who typically works for themselves and contracts with another company to provide a service. In other words, independent contractors are self-employed, generally supply their own equipment to carry out their work, and control their hours. They may also only provide services for a limited duration of time.

Employees, on the other hand, work directly for their employer and under their control. Under California law, an employee is defined as a person “in the service of an employer under any appointment or contract of hire or apprenticeship, express or implied, oral or written, whether lawfully or unlawfully employed. . . .” Workers in California are presumed to be employees unless an employer can prove the three essential elements of the ABC test set forth in Assembly Bill 5.

The ABC Test

Unfortunately, some employers label workers as independent contractors when they should be classified as employees. Sometimes misclassification can occur by mistake. In other instances, employers may be attempting to avoid paying certain employment taxes or providing benefits to employees. Importantly, misclassified employees may not receive crucial protections such as minimum wage, healthcare coverage, retirement benefits, meal and rest breaks, and unemployment insurance.

The ABC test is a stringent analysis that only allows workers to be classified as independent contractors under limited circumstances. Under the ABC test, a worker is considered an employee under California law unless their employer can establish each of the following:

  1. The worker is not controlled by the company — The worker must be free from the control of the hiring entity in the performance of the work both under contract and in fact. For example, if a worker must work during the company’s set hours, wear a company uniform, or report to a supervisor, the level of control exercised over the worker may make them an employee.
  2. The worker’s job is not within the usual course of the hiring company’s business — If the worker’s job falls within the company’s core business operations, they must be classified as an employee. Accordingly, a good example of a worker who may be classified as an independent contractor is a security guard at a retail store.
  3. The worker was customarily engaged in an independent trade or business — Someone who is in business for themselves will typically qualify as an independent contractor. However, if they only work for a single company, they are usually an employee of that entity.

In the event that the employer can satisfy each individual element of the ABC test, the worker may be classified as an independent contractor. But if any of the three criteria are not met, the worker must be classified as an employee by law. Failure to do so can result in the employer incurring penalties — and an employee may be able to take legal action to recover the wages and benefits they’ve wrongfully been denied.

Penalties and Available Damages for Independent Contractor Misclassification

If you were misclassified as an independent contractor when you were actually an employee, you might be entitled to certain damages by taking legal action. Critically, an employer may also face monetary penalties ranging between $5,000 to $25,000 per violation depending on the circumstances surrounding the misclassification — if the employer willfully misclassified the employee, a higher penalty may be imposed.

A worker who was misclassified may be entitled to file an individual lawsuit or participate in a class action to recover their economic damages. Specifically, an employee may be eligible to obtain liquidated damages, all the wages they would have received if they were not misclassified, reimbursement of business expenses, and any applicable overtime they should have been paid. They may also be entitled to interest and reasonable attorney’s fees.

Contact an Experienced California Employment Law Attorney

If you were wrongfully misclassified as an independent contractor by your employer when you were an employee, it’s important to be aware that you have rights. The qualified employment law attorneys at Optimum Employment Lawyers will carefully review your case and advise you regarding your potential legal remedies. Offering high-quality legal services and skillful representation, we work diligently toward the best possible outcome in every case. Contact us at (949) 954-8181 for a free consultation.

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