Who Is An Independent Contractor?
California’s AB5, which went into effect on January 1, 2020, redefines the differences between employees and independent contractors. Worker classification has become a significant issue in the last decade, as the rise of the gig economy created a unique type of employment. The new employment law applies across industries but is especially important to businesses like app-based rideshare and food delivery services.
Independent contractors are not subject to minimum wage, overtime, meal and rest breaks, and other benefits typically enjoyed by full-time employees, which leads some employers to deliberately misclassify workers to pay less in wages and taxes and have far fewer liabilities. Independent contractors also are not offered the protection of safety and anti-discrimination and retaliation laws as employees are.
So, who is considered an independent contractor? AB5 established the ABC test, which gives three criteria for independent contractors. To be classified as an independent contractor, the worker must meet all the following:
A. Be free from the control and direction of the hiring entity in connection with the performance of the work;
B. Perform work that is outside the usual course of the hiring entity’s business; and
C. Engage in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity
There are exceptions to the ABC test. Around 50 job categories are subject to an alternative test, called the Borello test, to determine employment status. These include physicians, attorneys, insurance brokers, real estate agents, freelance writers, hair stylists, accountants and more. There was no exception made for companies, such as Uber, whose business models were built upon the labor of independent contractors.
Implementation of AB5 did not automatically change the employment classification of California workers. Employers bear the responsibility of evaluating the classification of workers and reclassifying independent contractors as necessary, or they face serious consequences.
If you suspect that you are wrongly classified as an independent contractor, you could be entitled to back pay and benefits from your employer.