Assembly Bill 5 expands on a ruling made in a case that reached the California Supreme Court in 2018, Dynamex Operations West Inc. v. Superior Court of Los Angeles. Instead of the previous, more flexible multifactor inquiry for determining whether independent contractors were properly classified, the California Supreme Court ruled that companies must use a three-pronged test (aka the ABC test). This test assumes that workers are employees unless the company that hires them can prove the following three things:

A

The worker is free to perform services without the control or direction of the company.

B

The worker is performing work tasks that are outside the usual course of the company’s business.

C

The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Some states already use some form of the ABC test for purposes of qualifying for workers’ compensation, unemployment insurance, wage and hour entitlements or for withholding taxes. In addition to the ABC test, independent contractor status for those exempt from AB5 will still be evaluated under the Borello test, a multifactor analysis that focuses on economic realities. The most important factor is the hiring entity’s “right to control” the contractor (akin to Part A of the ABC test). The courts also consider other factors, many of which are similar to the ABC test. But, unlike the ABC test, not every factor has to be present when the Borello test is applied.

In California’s case, the ABC test holds companies to a higher standard than was previously used in proving workers are independent contractors. By reclassifying independent contractors as employees, companies would be forced to alter their budgets in a major way. For example, Vox Media’s SB Nation, a network of sports blogs and websites, fired all its California contractors, as well as contractors from other states who wrote for California-based websites, and created a few new employee positions to run the California sites.