New California AB 5 Legislation Causes Confusion for Gig Workers And Comp Carriers
The New California AB 5 (Assembly Bill 5) has the gig worker economy up in arms. Let us start with the Bill itself. The Bill can be found here. Reading it over may be a good idea.
The Bill was introduced by Lorena Gonzalez and supported by Governor Gavin Newsom.
Why is this bill so important? Because it codifies The Dynamex Decision. What is the Dynamex decision? Check here for that court ruling. I had written on the subject a few times. My newsletter has the article on Dynamex in the viral archive section. The article became viral after I first posted it in 2018.
Many phone calls and emails have come into J&L’s offices from employers concerning workers’ comp premium auditors addressing their audits with the main question from the Dynamex decision. Take the time to read the archived article. Understanding the decision is well worth your time.
California AB 5 initiated a firestorm on if gig workers become employees or stay as independent contractors. The Law of Unintended Consequences kicked in as truckers came under the jurisdiction of the AB 5.
Uber, Lyft, and Postmates have all refused to follow the new law that became effective January 1, 2020. To date, the companies did not reclassify their workers are employees. Many parties filed temporary injunctions against the new rules. The companies have pledged $90 million in California to have AB 5 reversed.
The misclassification of employees as independent contractors remains a hot button for people on both sides of the issue. Freelance writers and photographers fall under this law. Many have experienced having their contracts terminated. Some gig workers have supported California AB 5 as a way to have fair living wages.
The IRS publishes a rather involved website on how to determine if a worker is a subcontractor or employee. The guide does not fit every jurisdiction. Think of it as a rule of thumb.
Workers’ Comp Carrier Premium Audits
The premium auditors have their work cut out for them. If an employer objects to having a worker or workers reclassified as an employee, what does the auditor do about an unsettled issue? OK, so say a premium auditor audits an employer where gig economy individuals write articles as a side job. The auditor reclassifies them as employees. The premium auditor may be wrong. Why?
The new law does provide a specific carveout for freelancers: They can contribute up to 35 submissions per year to a single outlet and still be considered contractors. Wow – my head hurts.
And this is one example of making a premium auditor’s job more difficult and possibly having the employer paying excess premiums. There are more exceptions, such as:
Several businesses were granted exemptions because they were able to demonstrate the following:
- Whether or not their independent contractors had the wherewithal to set or negotiate their own prices – this is left to much interpretation – define negotiate
- Whether they had access to direct communication with customers – once again – an interpretation – define direct communication
- Whether they earned at least twice the minimum wage – An Uber driver can write off their mileage on their taxes, does that count as income?
One could go on and on debating the fine points of the three above bullet points for hours on end.
Ouch – this whole situation is getting very complicated for workers’ comp insurance carriers, their insured clients, agents, underwriters, and premium auditors.
Why Is This CA Law So Important
The California Courts patterned their decision off a Massachusetts rule. In other words, this law is not isolated to California AB 5. It is coming to a state near you. I have always advised readers and clients that their state or states of operation may adopt something similar to California AB 5 very soon. Be prepared.
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