The CA “Misclassification” Virus Spreads

Adam Crepeau outlines how California’s highly debated new law changing how workers are classified in the “gig economy” is spreading like a virus to other states.

He states: Assembly Bill 5 (AB5) codifies the three pronged “ABC test” that was established in the 2018 California Supreme Court case, Dynamex West Inc. v. Superior Court of Los Angeles, to determine whether a worker is considered an employee of a company or an independent contractor. Under this test, workers are considered employees unless their employer can prove:

  1. The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and
  2. The worker performs work that is outside the usual course of the hiring entity’s business; and
  3. The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.

Additionally, there are stark differences between independent contractors and employees. Generally, employees enjoy more structure and defined benefits whereas independent contractors have more flexibility in their schedules and control over their lives. In other words, there is a tradeoff, but both classifications have their benefits depending on workers’ needs. For employers, reclassifying workers is more expensive because they will be required to provide to employees a number of benefits that are not currently offered to independent contractors, including a minimum wage, workers’ compensation and other defined benefits. In addition, companies would need to withhold taxes for employees, which increases the cost of payroll.  

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