California has recently passed Assembly Bill 5 which deals with how companies classify those who work for them. It deals with the difference between contractors and employees. Contractors are often not afforded the same rights as employees, such as paid sick time and workers’ compensation, which can make them cheaper for a company to use. Unfortunately, this leaves the contractor in a vulnerable position.

Who qualifies as a contractor?

The new legislation codified the ruling in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, a decision issued in 2018. It established a three-part test to determine whether someone is a contractor. According to Assembly Bill 5, a contractor is someone who:

  • Is free from the control and direction of the hiring entity in connection with the performance of the work
  • Performs work that is outside the usual course of the hiring entity’s business
  • Is customarily engaged in an independently established trade, occupation, or business

In simpler terms, this means that a contractor is someone who:

  • Has freedom in how they do their job
  • Doesn’t perform work that a company’s employees engage in
  • Works in a similar vein outside of their work for the company

Who is an employee?

People who do not pass the three-part test above must be considered employees. There are exceptions, but generally, the bill makes it harder for companies to justify classifying people as independent contractors. Those previously working as contractors may see their classification updated when the law goes into effect on January 1, 2020.

Shaking up the gig economy

This new law could have a significant impact on the gig economy, which focuses on short-term jobs. Companies such as Uber that have built their business models on using contractors may be in trouble. They may have to start offering the same benefits companies usually provide their employees.

As this new law comes into effect, it’s crucial that you put thought into your employment status and whether the legislation affects you. Your place of employment may have to grant you more benefits if you have previously been working as a contractor.