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AB5 could change definitions of contractor and employee

Protesters made their way through the California Capitol building last week, pressuring lawmakers to pass AB5, a bill that would require companies like Uber and Lyft to treat their workers as employees instead of independent contractors. The legislature has to decide on AB5 before the end of their session on Sept. 13. Both rideshare companies and their workers have thrown a lot of time and money into lobbying the issue. California Governor Gavin Newsom has even said that if Uber and Lyft want a say in the decision, they will have to arrange an agreement with labor groups or face “insurmountable” opposition.

If AB5 passes, the bill could help more than just rideshare drivers. Those benefits could expand to workers in other industries as well, including janitors, salon workers and cable installers.

Advantages these workers could receive if the law passes

Workers could receive many employee benefits they didn’t get before. These include an hourly wage, sick leave, health insurance, overtime pay and unemployment compensation.

How the bill defines employee status

If the law passes, rideshare companies among others could be subject to rules under the Dynamex decision, which puts restrictions on whether employers can classify workers as independent contractors. For employers to reject full-time employment status, their records would have to show:

  • The company has no direction or control over the worker.
  • The duties the workers perform are outside of the business’ usual operations.
  • The worker has their own business or trade beyond the work they do for the company.

Are there industries that are exempt from changes under the proposed law?

Yes, authors of the bill added these professions in the final rounds of amendments. They include dog groomers, real estate agents and lawyers because many of these professions make well over the minimum wage in California.

What affected industries are saying about the proposed law

Officials for the industries affected have expressed concerns that making these workers full-time employees could create a hefty financial burden, saying higher labor costs could increase expenses by 20% to 30%. They have also voiced concerns that the law could upset investors as Uber and Lyft have already reported significant losses this year.

How AB5 could impact a business

AB5 could have a serious financial impact on the health of a company. Owners and managers with questions should consult with an experienced employment law attorney. These legal professionals can help businesses understand definitions of employee and contractor under the proposed law, and how to keep your organization running smoothly.