What AB5 Means to California Business Owners

by | Sep 24, 2019

Last week, California Gov. Gavin Newsom signed Assembly Bill 5 into law. The bill forces employers to classify gig workers as employees and may force companies like Uber and Lyft to remake their business models. AB5 was introduced by Assemblywoman Lorena Gonzalez earlier this year to codify a recent Supreme Court decision (the Dynamex case) into law. Under AB5, which will go into effect on January 1, 2020, a worker will be considered an “employee” rather than a “contractor” if his or her job forms part of a company’s core business, if the company can direct the way the work is done or if the worker has not established an independent trade or business. The new classification means that workers would now be eligible for employee protections like minimum wage, meal breaks, paid sick days and health insurance benefits.

AB5 covers workers in a variety of industries, including health care, janitorial, construction, trucking and media. Doctors, accountants, architects, real estate agents, travel agents, graphic designers and investment advisors — along with some other professions — will not be subject to the strict employee rules under the new law.

Now that legislation has become law, workers who believe they are incorrectly classified as contractors have two options: a lawsuit or a complaint to the Labor Commissioner. They are not wasting any time—just three days after AB5 was passed, grocery delivery company Instacart was hit with a lawsuit alleging the company has misclassified its workers as independent contractors to avoid paying overtime, providing unemployment insurance and scheduling paid rest breaks. Many Lyft and Uber drivers have filed class action lawsuits claiming that they were misclassified and are owed mileage reimbursement and other backpay. DoorDash is also facing a class action lawsuit arguing that drivers are entitled to a guaranteed minimum wage on top of 100% tips. A lawsuit filed on behalf of cleaners and repairmen against Handy argues the company must pay up to $25,000 in penalties per California worker that has been misclassified. The trucking industry has already shelled out millions of dollars in settlements to drivers claiming they were misclassified as freelancers.

Our law firm has now represented the interests of many businesses and owners of businesses facing these types of lawsuits. These lawsuits may not only bankrupt an otherwise healthy business, but the judgment can often reach the personal assets of the individual business owners (even when the business is incorporated). Business owners in these and many other industries must now decide whether or not to comply preemptively or risk being sued by workers and state officials. Further, the new ruling will likely feed the fire of lawsuits filed by employees at smaller companies, blurring the lines on what constitutes being employed.

We strongly encourage California business owners to first reach out to an employment attorney to complete an analysis of worker classification, and then to reach out to us to help set up asset protection structures for the assets of the individual owners and the assets of the business.

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