Posted on January 13th, 2020
FULL TRANSCRIPT:
What’s up fellow entrepreneurs, it’s John Fagerholm again. And earlier this month I had done a video about all of the laws that are coming into play in 2020.
So now I want it to get into specific laws because the previous, or the video I just referenced was a summary of all of these different laws.
Most of them of course were bad for us business owners, but there was one or two that either were innocuous or benefited us.
think there was only one in particular that benefited us. But anyway, let me get into AB5. So the gist of AB5 is that AB5 codifies the Dynamex case. And the Dynamex case has been out since October, 2018.
So everyone’s panicking about AB5 and honestly I think even if they shouldn’t panic, they should be seriously concerned about what’s going on.
Now what Dynamex did was it expanded what, well it changed the analysis of what an independent contractor was. And so it expanded it from what used to be what California used to determine whether somebody was an employee or an independent contractor, which was called the Borello Test.
So now that now Dynamex is in place and the difference between Dynamex and AB5 is that Dynamex is case law. And basically it’s some judge made a ruling that yes, this new test should apply to independent contractors in California.
Now AB5 codifies that and expands it a little bit. And worst of all, or the worst thing about this is that it then gives California enforcement powers.
So everyone’s afraid of Dynamex, they know it’s coming January 1, 2020 but what most employers don’t realize is… I’m sorry, not Dynamex, AB5. They’re afraid of AB five, but what they didn’t realize is that that was existing law already anyway, since 2018. October, 2018.
So it isn’t that you can’t be sued under Dynamex.
You can. So as of October one 2018 any of your independent contractors could sue you privately claiming that they were misclassified and could seek whatever remedies that the law allowed.
But now with AB5… I’m sorry guys, I keep getting these alerts. Now with AB5 basically nobody even has to complain. So if you had someone that you thought was an independent contractor and they’re happy and you’re happy and there’s no problems, but then California comes knocking at your door and says, “Hey, we think that these group of people should be employees under AB5.” Well now where a problem didn’t exist, one does.
And of course with California and any other government agency really along with all of those problems comes a bunch of fines and things that you will have to pay to California of course.
So that’s the big problem with AB5.
Now let me just read my notes here because I wanted to make sure that besides just sort of giving my opinion on what AB5 is, not opinion, but what I think about AB5 is to actually make sure people understand what it is.
So the AB5 applies more broadly than Dynamex meaning it covers a lot more of what would have been termed independent contractors and it also gives the enforcement power.
Those are the two big things about Dynamex now. So under Dynamex there was an ABC test, right? Well previously with the Borello Test, the primary factors was degree of control.
Do they use your own equipment, do they have their own business license, things like that. So what Dynamex has done is expanded Borello, but also added things that would expand what an independent contractor is.
So the A test is the person is free from the control and direction of the hiring entity in connection with the performance of the work. So that was already part of Borello anyway. The C portion of it, and I’m getting to see before B because B is the important one.
The person is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed. So that was already part of Borello.
Now it’s the B portion that’s a problem for everybody. The person performs work that is outside the usual course of the hiring entities business. So, basically if you are a law firm and you hire a plumber, well plumber doesn’t do legal work, no problem, right? You pass the B test.
However, if I hired a lawyer, that would be something different. But there are exceptions, certain occupations that are exempt from this, lawyers being one of them.
So that may not have been the best example. But my point was that if lawyers weren’t an exemption and I hired some other separate entity lawyer to do something for one of my clients, then they could potentially be considered an employee of mine.
That was the point of saying that even though they’re exempt. All right, so let’s see.
So getting onto the exemptions, there’s certain classifications that are exempt. Insurance salesman, lawyers, a lot of white collar type of exemptions.
I mean, you can go online and see what exemptions there are for yourself, I can’t name them all, but at the end of the day there aren’t enough there to really make much of a difference. The one I thought was funny was, not an exemption, but one that wasn’t exempt that you would think would be exempt was strippers.
I just thought that that was funny. I feel bad for the strip clubs because this is probably going to put most of them out of business. Now what was Dynamex targeting? Well really and what is AB5 really targeting?
It’s really targeting the gig economy. So if you’re in any type of gig economy, watch out. If you’re using independent contracts at all, at least look to see if there’s an exemption.
If there isn’t, then make sure that your passed the ABC test. It’s unfortunate we are in a gig economy. Uber, Lyft, wonderful companies. I just don’t see how they’re going to get around this.
Paying minimum wage, workers’ comp, over time, lunch breaks. I mean I just don’t know how they’re going to do it. I think their best option is just to fight it. And what I’m most bummed about is I use Uber Eats three times a week. I just don’t see how Uber Eats is going to get around it. January 1 is coming up very quickly.
My guess is that they’re either going to have to pay that money, which of course is going to give us worse service and costs us more money.
Or there’s going to be some stay by some judge or there’s going to be some agreement. I don’t know.
Either way, if you’re an employer in California and you’re using independent contractors, be very, very, very careful.
