On September 18, 2019, Governor Newsom signed California Assembly Bill 5 (AB 5) into law – codifying and expanding the California Supreme Court’s decision in the Dynamex case and the “ABC test” for determining if a worker may be classified as an independent contractor, instead of an employee.
Below is how AB 5 expands the Dynamex ABC test, creates exemptions, and establishes new methods of enforcement.
Under the ABC test, a worker is presumed to be an employee unless the company proves that the worker:
- (A) Is free from the control and direction of the company in performing work, both practically and in the contractual agreement between the parties; and
- (B) Performs work that is outside the usual course of the company’s business; and
- (C) Is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the company.
More simply, to satisfy the ABC test and legally classify a worker as an independent contractor, the company must prove that the worker is free from the company’s control, performs work outside the company’s primary business, and is regularly engaged in the trade the worker is hired for, independent of work for the company.
The Dynamex test introduced two new factors that were never before part of California’s independent contractor analysis. Part (B) – which requires the worker “perform work that is outside the usual course of the hiring entity’s business” – is often the most difficult to satisfy and impacts nearly every industry. Part (C) – which requires the worker to be “customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity” – eliminates most workers who perform side jobs (like those in the gig economy) that are relatively minor compared to their main day-to-day work.