Amendments to California AB 5 May Allow for a Third Class of Worker

 Posted on March 31, 2020 in Employment Taxes

In 2018, the California Supreme Court made a decision that would radically change how workers are classified in California. In the groundbreaking decision regarding Dynamex Operations West, Inc. v. Superior Court of Los Angeles, a new “ABC test” for determining worker classification was announced. According to the test, workers are presumed to be employees unless the hiring agency can establish that the worker is free from the agency’s direct control, he or she performs work that is outside the hiring agency’s normal business, and the worker is involved in an independently established job or business of the same nature as the work he or she performs for the hiring entity. 

California Assembly Bill 5 codified these criteria into law. Now, the California legislature is considering a number of bills that are intended to modify what many people consider to be the overly strict worker classification rules set forth in AB 5. One such amendment is Senate Bill 1039, or “The Independent Worker Rights Act of 2020.”

Controversy Over AB 5 Restrictions

Although proponents of AB 5 have stated that the law is intended to defend workers and guarantee wage protection, many people believe that the worker classification criteria set forth by the bill will do more harm than good – to both employers and workers. The bill has received harsh criticism from “gig economy” companies such as Uber, Lyft, and food delivery businesses. The trucking industry has also expressed serious concern as to the law’s constitutionality as it applies to truck drivers. Trucking companies have received a temporary exemption from AB 5 worker classification rules, but it is still unknown exactly how AB 5 will apply to trucking companies and other businesses that typically hire independent contractors.

New Bill May Create a Third Class of Workers

Many people believe that the heart of the worker classification issue is that the system currently only offers two choices: employee or independent contractor. Employees are entitled to benefits such as health insurance and workers’ compensation and are protected under federal and state wage laws. Independent contractors do not receive these benefits, but they also enjoy a great deal of freedom over work tasks and schedules. Senate Bill 1039 claims that classifying contractors as employees has caused “the loss of opportunities for these workers due to the cessation of businesses operating in California. This has resulted in fewer opportunities for independent workers desiring flexible working conditions in the current economy.” 

In response to this problem, SB 1039 intends to pave the way for a new class of worker who is neither an employee nor a contractor. Workers who voluntarily choose this third classification would receive certain benefits typically only available to employees, such as minimum wage, while still being subject to many of the characteristics of independent contract work. Advocates of SB 1039 hope that by offering a third worker classification, employers will not be forced to classify the majority of their workers as employees.  

Contact a San Jose, CA Business Lawyer

Employment law is constantly changing. For trustworthy, up-to-date legal guidance regarding worker classification concerns, independent contractor agreements, tax issues, and more, contact John D. Teter Law Offices. Schedule a confidential consultation with an experienced San Jose tax attorney by calling us at 408-866-1810 today.

Sources:

https://www.forbes.com/sites/tonymarks/2018/05/29/the-california-supreme-court-deals-a-blow-to-independent-contractors/

https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200SB1039