Misclassification of Employees and Independent Contractors After AB-5
In 2019, California signed AB-5 into law. This had a widespread effect on the way contractors worked and ended up being paid, and legally, companies had to approached how they classified employees differently. If you hire independent contractors for your business, you may be concerned about whether or not you’re correctly upholding AB-5. Learn about the misclassification of employees and independent contractors after AB-5 to shield your business from a potential lawsuit.
Do you need experienced and effective representation to assist you with employee issues? Then get in touch with Robin D. Perry. The Law Offices of Robin D. Perry & Associates provide vigorous representation to clients and are a goal-oriented and values-driven firm. We develop creative strategies to win every case, every time and are confident we can help you with your business contract. Reach out to us today to schedule your consultation.
What Is AB-5?
In response to the rise in gig workers because of companies like Uber and Lyft, California passed California Assembly Bill 5, or AB-5, which was signed in 2019 and went into effect in early 2020. You may have heard it referred to as the “gig worker bill” as well.
Lawmakers passed this bill in hopes of protecting gig workers. Within it, there is an ABC test employers must do to determine whether their workers are employees or independent contractors. If they are independent contractors who do not meet the ABC test, then employers have to classify them as employees and not contractors anymore.
Businesses could get into trouble if they are misclassifying employees and independent contractors and not following this relatively new law. It’s incredibly important for employers to classify workers correctly and hire a business consultant, like an attorney, to help.
What Is the ABC Test?
The ABC Test is three-pronged. The test presumes that workers are employees unless an employer can show that:
- The worker is able to perform services without direction or control from the business.
- The worker is performing tasks that are outside of the usual types of activities the business engages in.
- The worker is engaged in an independently established business, trade, or job of the same nature as the tasks they are performing for your business.
Companies like Uber and Lyft were, in California Superior Court Judge Ethan Schulman’s eyes, not following the ABC Test. They were allegedly misclassifying employees as independent contractors, since the work the drivers do is crucial to the companies’ success. And if independent contractors were actually employees, this means they were entitled to benefits like health insurance, paid sick and family leave, workers comp, and unemployment insurance.
The Pushback to AB-5
There was a large pushback to AB-5 from companies as well as independent contractors. While contractors could access benefits, they’d loss the flexible to work whenever and wherever they wanted. Companies might also not hire them altogether because they’d have to pay them benefits. They could end up losing work.
On September 4, 2020, Governor Gavin Newsom signed Assembly Bill 2257, which excluded workers from a number of occupations from the ABC Test. Some of those include freelance writers, video editors and photographers, musicians, and fine artists.
Uber, Lyft, and DoorDash started fighting back against AB-5, and by November of 2020, California voters passed Proposition 22. The measure legally classifies their workers as independent contractors.
The Consequences of Misclassifying Workers
If you misclassify your workers, you could face a number of penalties from the state of California as well as your workers.
First, workers may be able to bring legal action against you for misclassifying them. They might sue you for damages, and if you lose, you could have to provide them with a settlement. One worker could bring about a lawsuit, or you may have to respond to a class action lawsuit from multiple workers.
An employer could also be fined between $5,000 and $25,000 per violation if they misclassified a worker. If the misclassification was intentional, then the penalty could be even higher.
If it’s known that you misclassified workers, you could get a bad reputation in your industry. This means it may be harder to find great talent as well as establish yourself as a leader in your industry. Talented people won’t want to work with you if you don’t treat them properly, and other companies as well as customers could be hesitant to engage in business with you.
Ensuring You Don’t Misclassify Workers
If your company qualifies for the exceptions to AB-5, then you can classify some workers as independent contractors. However, if your company doesn’t qualify for the exceptions, you could get into trouble by classifying workers as independent contractors.
It’s a good idea to talk with a business attorney when you’re hiring employees. Then, you can avoid any issues that may come up as well as protect your business.
Plus, a business attorney can help you look at the bigger picture and give you guidance on growing your business. For instance, they may recommend giving your employees competitive benefits in order to attract the best of the best talent that’s out there. Or, they might help you only hire independent contractors while you’re still getting your business off the ground.
Either way, a business attorney can be a valuable part of your success.
Contact Robin D. Perry & Associates
If you need help with correctly classifying your employees and independent contractors, then it’s time to get in touch with the Law Offices of Robin D. Perry & Associates today. No matter what, we will fight on your behalf during your time of need. Call us at 562-216-2944 or contact us on our website to schedule your consult today.
Attorney Robin D. Perry has been part of the Long Beach Community for over 25 years handling business litigation, employment litigation and advising, criminal defense, personal injury and code enforcement defense for businesses.
