AB5

Independent contractors in California now have to pass a “test” to maintain their independence. This may be good for a few Uber and Lyft drivers, but it is a stinging blow to companies and workers that rely on the financial flexibility of contract work.

California’s AB5 was signed into law by Gov. Gavin Newsom in September. It becomes effective on January 1, 2020. The test that a worker must pass to remain independent is known as the “ABC test.” Under AB5, you may be classified as an independent contractor if a) you are free from the company’s control, b) you do work that is not key to the company’s business, c) you maintain your own independent business in the same industry.

This law was inspired by the protests of ridesharing drivers who felt they were being exploited by Uber and Lyft. The law will require California companies to classify all workers who do not pass the ABC test to be “on the books,” and to be entitled to all rights and privileges of employees including: minimum wages, unemployment insurance, worker’s comp and disability, paid vacation and sick leave, overtime pay (for part time workers), and whatever healthcare plans are available to other employees.

As I have previously written, you can argue this two ways:

1) workers are entitled to certain benefits, such as a clean workplace, vacation days, sick days, some version of healthcare (a hot topic on its own), disability coverage, worker’s comp, unemployment insurance coverage, etc.

2) as an independent contractor, workers can control their own P&Ls, their own tax returns, have flexible hours, choose their own healthcare plans, pay way lower taxes (because they can deduct practically everything they do as business expenses), be their own bosses, etc.

This should always be a personal choice. Some people just want to work and have everything taken care of for them. Others want the freedom and flexibility of running their own businesses and their own lives. There is no “one-size-fits-all” solution for this. But one thing is clear: people and businesses should not be forced into working one way or the other by legislation.

Sadly, that ship has sailed. California is first, but similar laws are pending in New York, New Jersey, Washington, and Oregon (to name a few).

How will this play out? Both Uber and Lyft say they are not going to reclassify their drivers as employees. Get ready for a legal showdown in a courtroom near you.

 

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Author’s note: This is not a sponsored post. I am the author of this article and it expresses my own opinions. I am not, nor is my company, receiving compensation for it.

About Shelly Palmer

Shelly Palmer is a business advisor and technology consultant. He helps Fortune 500 companies with digital transformation, media and marketing. Named LinkedIn's Top Voice in Technology, he is the co-host of "Think About This with Shelly Palmer & Ross Martin" on the Westwood One Podcast Network. He covers tech and business for Good Day New York, writes a weekly column for Adweek, is a regular commentator on CNN and CNBC, and writes a popular daily business blog. Follow @shellypalmer or visit shellypalmer.com

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