On Sept. 18, 2019, Governor Gavin Newsom signed Assembly Bill No. 5 (AB 5) into law in California. The landmark legislation, which came into effect Jan. 1, 2020, promises to significantly expand the number of workers treated as employees for state tax and labor purposes. Although the legislation was aimed at participants in the “gig economy” (i.e., freelancers) it has much broader application. Early estimates suggest that as many as one million workers in California will be affected by this legislation. Moreover, for some businesses, it may result in workers having an inconsistent treatment for federal and state purposes.
Under the prior law, California’s Employment Development Department (EDD) and courts would apply an 11-factor analysis from S.G. Borello & Sons, Inc. v. Department of Industrial Relations to determine whether a worker should be classified as a worker or independent contractor. AB 5 codifies the three-part test for determining independent contractor status as established in Dynamex Operations West, Inc. v. Superior Court.