California law provides many benefits to workers who are employed by a separate employer. Some of these benefits require the employer to pay all or a portion of the benefit, and many employers are therefore motivated to classify employees so that they do not qualify for these benefits.
In 2019, the legislature passed Assembly Bill 5 (AB5) that clarified and extended the classifications that provide extra benefits for employees. AB5 was intended to alleviate confusion in key areas and to clarify the legal difference between employees and independent contractors.
Many experts in the area of employee/employer relations felt that AB5 did not go far enough in clarifying the distinction between employees and independent contractors. Therefore, the same state legislator who sponsored AB5 recently sponsored a series of amendments, all contained in AB 2257. The new law was signed by Gov. Newsom on Sept. 4, 2020.
The importance of a proper classification
All employees in California are entitled to be paid mandatory overtime if they work more than forty consecutive hours in a single week. Other benefits that depend upon a person’s classification as either an employee or an independent contractor include paid sick days, workers’ compensation benefit and unemployment insurance.
A person is not entitled to these mandatory benefits if he or she is an “independent contractor.” Employers routinely attempt to escape the financial burden of providing these benefits by classifying their employees as independent contractors. AB5 is the legislature’s attempt to clarify the difference between a true independent contractor and an employee.
The ABC Test explained
AB5 used what has become known as the “ABC Test,” a method of classification that depends upon the employee’s actual duties, not merely on the employer’s self-serving statements about the job. Under the ABC Test, a worker can only be classified as an independent contractor if the following three tests are met:
- The worker must be free from control and direction by the hiring company
- The worker performs tasks that are outside the usual course of business of the hiring entity; and
- The worker is independently established in that trade, occupation or business.
The new law retains the ABC test, and any worker who does not meet the foregoing criteria must be classified as an employee and must receive all benefits to which employees are entitled under state law. Perhaps the most important provision in the bill is the requirement that an employer bears the burden of proof showing that the three categories have been satisfied.
The changes to the law made by AB 2257 involve numerous details. Any worker whose employer has attempted to prevent them from collecting basic benefits such as workers’ compensation or mandatory overtime, or who has other questions about his or her status as an independent contractor or employee may wish to seek the advice of an knowledgeable labor law attorney who is experienced in dealing with employers who seek an unfair advantage by intentionally misclassifying their workers.