Understanding AB 5

Since its introduction to law in late 2019 and its application in 2020, California Assembly Bill 5 (AB 5) has remained a contentious issue as some industries have struggled to adjust to the sharp change in employee categorization.

AB 5 relies on a 3-pronged test to determine employment that came about through 2018’s court case Dynamex Operations West, Inc. v. Superior Court of Los Angeles. Commonly referred to as the “ABC Test,” it presents that a worker is presumed to be an employee unless the hiring entity demonstrates all three of the following conditions:

1. The individual is free from control and direction, both under contract and in fact.
2. The individual performs work that is outside the usual course of the hiring entity’s business.
3. The individual has their own independently established business of the same type as the work performed.

Exceptions to AB 5 remain a tight group despite protests and legal action by highly affected industries such as the transportation industry. The following services could be exempt from the ABC Test if certain criteria are met:

1. Specific Occupations – (doctors, lawyers, architects, psychologists, etc.)
2. Professional Services – (marketing, enrolled agents, freelance writers, etc.)
3. Real Estate and Repossession Agency – (real estate agent, real estate broker, etc.)
4. Business to Business Contracting
5. Construction Contractors
6. Referral Agency – (graphic design, photography, event planning, etc.)
7. Motor Clubs

Despite state-wide protests, the trucking and transportation industry does not fall under these exceptions. AB 5 has gone into effect for this industry upon the U.S. Supreme Court’s denial to review California Trucking Association v. Bonta thus requiring the Ninth Circuit court to remove the injunction.

Of concern for the trucking industry was the B prong of the ABC test, which defines an independent contractor as a worker who “performs work that is outside the usual course of the hiring entity’s business.” A trucking company hiring an independent owner–operator would presumably fail the B prong of the ABC test; all prongs must be met for the worker to be an independent contractor. Application of the ABC test under AB 5 will mean reclassifying drivers as employees in many cases.

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