California AB 5 Causes Workers Comp Conundrum For Gig Workers

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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.

California AB 5 State Flag
Public Domain License

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

Work Sheet California AB 5 audit
Wikimedia Commons – KG Shreyas Thimmaiah

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

Supreme Court of California AB 5 State building
Wikimedia Commons – Tobias Kleinlercher

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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James Moore

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Mgmt Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications

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