In 2019, California lawmakers passed Assembly Bill 5 (AB5). This bill targets companies that employ independent contractors to conduct their primary business. AB5 uses three new questions that set a different standard for classifying employees as independent contractors.
AB5 went into effect on January 1, 2020 but has faced considerable pushback. Uber and Lyft, two ride-sharing companies that hire independent contractors for their basic operations, have joined forces to sponsor a ballot initiative overturning AB5. Voters will have a chance to weigh in on Proposition 22 in November 2020.
The new ABC test
California law uses an ABC test to determine a worker’s classification. Lawmakers designed this test after a 2018 case against Dynamex, a company that hires independent contractors as delivery drivers. After ruling in favor of drivers who sued Dynamex over their misclassification, legislators devised a new “ABC test” to classify employees. Employers can classify workers as independent contractors if they prove that:
- workers perform their job without performance direction;
- workers perform work outside the company’s normal course of business; and
- workers engage in other employment or trade of the same nature with another company.
What is Proposition 22?
Funded by a coalition of Lyft, Uber and other ride-sharing companies, Proposition 22 is an upcoming ballot measure for 2020. Uber and Lyft hope that California residents will vote to exempt “app-based” workers from AB 5. As California sues the companies for not complying with January’s law, Prop 22’s passing would deter the lawsuits. If passed, Prop 22 will classify app-based drivers, including those working for companies like Instacart and DoorDash, as independent contractors exempt from standard wage and hour restrictions. Prop 22 would also establish an “earnings floor” for drivers, provide a stipend for health insurance and offer benefits and job protections. The companies put forward $110 million to fund the ballot measure. If Prop 22 passes this fall, it may set precedent for other companies to follow.
Bring questions to a lawyer familiar with employment law
California business owners curious about their employees’ classification under AB 5 can reach out to a local attorney familiar with California’s evolving employment law. An attorney can assess any potential classification suits, work with government regulators and help draft settlement paperwork.