An Auckland, New Zealand man sensed he was about to fired from his job in the ad industry. His employer scheduled a meeting and said he could bring someone with him for emotional support.

He brought a clown.

As the employer provided the man with his separation papers, the clown made balloon animals — a poodle and a unicorn — to try to lighten the mood. The clown also mimed crying as the employer explained the termination.

Afterward, the man described the performance of his emotional support clown as “overall supportive” but “sort of noisy.”

California businesses may want to hire their own emotional support clowns as they try to decide how to respond to Assembly Bill 5 (AB 5), which has passed both houses and now awaits Governor Newsom’s signature to become law.

AB 5 makes it harder to classify workers in California as independent contractors.  Once it takes effect, it will instantly convert many thousands of independent contractors into employees.

Here’s how. AB 5 codifies the ABC Test invented by the California Supreme Court in the Dynamex case and then extends it.  In April 2018, the California Supreme Court ruled that a strict ABC Test would be used for determining whether someone is an independent contractor or an employee under California’s Industrial Wage Orders, which cover minimum wage, overtime, meal and rest breaks, and a few other wage-related subjects.

Under AB 5, the Dynamex ABC Test will also be used to determine whether someone is an employee under all portions of the California Labor Code and the Unemployment Insurance Code.  That means independent contractors in California will be presumed to be employees of the entity for which they perform services under these laws, unless the business can prove all three of the ABC Test factors below:

A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;

B) The person performs work that is outside the usual course of the hiring entity’s business; and

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

As discussed here, Part B of the test is the hardest to meet.

Unless all three factors of the test are satisfied, the workers will be considered employees under California law, and all of the following state law requirements will apply:

• Minimum wage
• Overtime, if not exempt, including daily overtime
• Meal and rest breaks
• Reimbursement of expenses
• Paid sick leave
• Paid family leave
• Various notice, poster, and wage statement requirements
• Timekeeping record requirements
• Unemployment coverage
• Workers compensation coverage
• Paycheck timing requirements
• On-call, call-back, and standby pay requirements
• Travel time payment requirements
• Final paycheck requirements
• Commission rules

This is not intended to be a complete list of all California laws that apply to employees, but these are some of the most likely areas where businesses would find themselves to be in a state of noncompliance if their independent contractors are deemed to be employees under AB 5.

There are a number of exemptions to the bill, but they are narrowly crafted.  Barbers and estheticians, for example, are not affected.

If signed, the law will take effect January 1, 2020, although some provisions may be applied retroactively.

This bad news leads to the obvious question you astute readers will ask: So what are my options if I use independent contractors in California?

I am putting the finishing touches on The Playbook: Now That California Has Passed AB 5, What Are the Options for Businesses Using Independent Contractors?

The Playbook will be available at no cost and will be released as a BakerHostetler Client Alert. I will post a link here, once it is available.

In the meantime, let me know if you’d like more information about how AB 5 might affect your business. If you can’t reach me, I’m probably on the phone, trying to hire my own emotional support clown.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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