CALIFORNIA ASSEMBLY BILL 5 (AB5) DEFINITION

     
Yogala Studios in Echo Park. In response khổng lồ Assembly Bill 5, the controversial new law curbing the use of independent contractors, Yogala owner Samantha Garrison is converting her part-time yoga teachers to lớn employee status.
At Yogala Studios, a small, cozy storefront in Echo Park, the teachers work mostly part time, some giving just one class a week. Workshops are offered in “the ancient spiritual, philosophical & meditative traditions of yoga & tantra,” as well as in “meditation khổng lồ tap into our creative potential lớn move through negative blocks.”

Recently, though, the studio has had lớn confront a very modern challenge: It is reclassifying its instructors, who had always been independent contractors, as employees with extensive labor protections because of California’s sweeping new law, Assembly Bill 5.

They aren’t complaining. “These are yogis,” said owner Samantha Garrison. “They look on the bright side of things.”

Across California, AB 5 is upending workplaces, prompting lawsuits, furious social truyền thông media campaigns and a multimillion-dollar ballot initiative, sponsored by Uber, Lyft, Postmates and DoorDash, which are refusing to lớn grant employee status khổng lồ their tens of thousands of drivers.

But as critics demand exemptions & even a repeal of the statute, many California businesses, large & small, are quietly adopting strategies to comply with the law, which took effect last month. It hasn’t been easy.


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AB 5 sets a new standard for hiring independent contractors, requiring many to be reclassified as employees covered by minimum wage, overtime, workers’ compensation, unemployment & disability insurance.

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With companies also having to cover employees’ Social Security and Medicare taxes, costs can mount. “I knew I needed khổng lồ bring in more money,” said Garrison, who raised her prices from $22 to lớn $26 per class.

So far, her clients aren’t upset, she said. “I reached out to every member. But it’s been a huge headache — a lot of paperwork và technicalities.”


The new law grew from a 2018 California Supreme Court decision in a case brought by drivers for Dynamex Operations West, a package delivery company. The court found the company illegally switched its workers’ status from employees to lớn independent contractors to lớn boost profits.

Workers have brought similar misclassification cases across the U.S. For decades as companies offloaded once-stable jobs lớn independent contractors and temporary help agencies in what some experts gọi “a fissured workplace.” But the nation’s growing income inequality is spurring a push for stricter laws.


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In California, industries such as construction, janitorial, trucking — và even yoga — had fought to retain independent contractors under a mix of complex rules that the Dynamex decision scrapped, replacing them with a tightened, simplified test.

To be independent contractors under the court’s new “ABC test,” modeled on laws in Massachusetts and several other states, workers must (A) work independently, (B) do work that is different from what the business does, và (C) offer their work lớn other businesses or the public. All three conditions must be met.

Under prong “B” of the standard, a yoga instructor working for a yoga studio would not qualify as an independent contractor any more than a driver for a transportation company, a drywaller for a trang chủ builder, a maid for a cleaning franchise, a caddie for a golf club or an actor for a theater.

Roughly a million California workers may need to lớn meet the ABC chạy thử to continue as either part-time or full-time independent contractors, the state Legislative Analyst’s Office estimated this week. The tally excluded tens of thousands of self-employed truckers, freelance writers and drivers for ride-hailing & food-delivery giải pháp công nghệ platforms whose status is under đánh giá in court cases.

The new law has companies scrambling lớn consult with labor lawyers, accountants & human resources specialists on how to avoid the lawsuits and regulatory fines that can result from misclassification. Penalties for violations range from $5,000 khổng lồ $25,000, & companies can be liable for back wages.

“There’s no industry out there that hasn’t tried to lớn dabble in independent contractors,” said Anna Towne, an executive at Bizhaven, a Sacramento consultant. More than 30 businesses, including construction, farming and tech companies, have sought her firm’s advice on how to comply with the law, she said, & nearly all have switched their independent contractors lớn employee status.

“Some want khổng lồ fly by the seat of their pants,” she added. “But we explain it’s not worth risking their business. They could get into hot water.”


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Towne also stresses the positives. “As an employer, they have much more control,” she said. “They can dictate what’s expected, how much time to lớn spend, how khổng lồ work with clients & with their other employees. With independent contractors, you can’t have that type of control.”

In one respect, AB 5 narrowed the reach of the court decision. It carved out a score of occupations such as physicians, lawyers, insurance & real estate agents, engineers, stockbrokers và others seen as having bargaining nguồn over their working conditions. The bill’s author, Assemblywoman Lorena Gonzalez (D-San Diego), is drafting a bill khổng lồ exempt a few others, including musicians, freelance writers and photographers. But most industries, especially those that use low-wage workers, are likely khổng lồ remain covered by the ABC test. Others can still be sued for misclassification under the previous looser rules.

Accountants are among AB 5’s exempted professions, but during tax season, they traditionally hire independent contractors to lớn help tệp tin clients’ returns and process payrolls.

“The law is having an immediate impact,” said Anthony Pugliese, chief executive of the California Society of Certified Public Accountants. His 45,000 members, he said, use “armies of temporary paraprofessionals. Thousands — it could be tens of thousands — are now being put on payroll, signed up for withholdings & offered benefits.”

Pugliese doesn’t oppose AB 5. “You wouldn’t have this law if there wasn’t some abuse where companies keep people as temp workers for a year, two years,” he said. “At some point it’s like — this is a real employee, why are you treating them lượt thích this?”

But his association is preparing daylong training sessions on AB 5 compliance “because there’s so much gray area,” Pugliese added. Temporary tax return preparers often work 90 or 120 days between January & April, he said, “but what if I’m only using them for a week? Who wants benefits for a week? It doesn’t make sense.”


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A “business-to-business” exemption in AB 5 allows contractors who set up a sole proprietorship, a limited liability corporation, a partnership or a corporation to avoid the ABC demo if they meet certain criteria. In recent months, hundreds of truckers who own their own big rigs at the ports of Los Angeles và Long Beach have phối themselves up as independent businesses in hopes of qualifying.

Sheila Scoville, president of Omni Therapy, a 30-employee Los Angeles referral agency, is one executive hoping the business-to-business provision will save her company — but she isn’t sure. Omni connects healthcare agencies khổng lồ physical, occupational và speech therapists who work as independent contractors helping elderly patients recover from strokes or surgery in their homes.

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Unlike physicians, dentists và psychologists, those therapists were not exempted from the law, which is aimed at ensuring that therapy businesses pay their workers, most of whom work on-site, as employees & offer them labor protections.

But Scoville argues that the roving professionals she refers may be paid by healthcare agencies, hospitals or Medicare and don’t necessarily work for Omni, although she has handled their paperwork and takes a cut of their fees. When the California Employment Development Department audited Omni under pre-AB 5 rules, “they interviewed our therapists, reviewed my text messages và emails, looked at clinical notes, and last year after 18 months of pain, I came out with zero liability,” she said.

But if the ABC test were applied, & the 500 therapists on Omni’s roster were deemed her employees, Scoville calculated that workers’ compensation alone would cost her nearly a million dollars a year.

As a work-around, after consulting attorneys, she informed all 500 therapists they would have lớn get their own business licenses or LLCs. Over the last month, some 150 quit. “They weren’t happy,” she said. “They are afraid of the law.”

Now, Scoville added, “I’m looking into providing services in other states. We started this month in Arizona. I don’t know how long I can keep going in California.”

For-profit businesses aren’t the only employers having khổng lồ adapt lớn the law.

“AB 5 hit us lượt thích a ton of bricks,” said Christian Lebano, artistic director of the Sierra Madre Playhouse, one of 28 small nonprofit theaters in the Los Angeles area. “No one makes a living in small theater. Actors and designers bởi it because they love the work or want the exposure.”


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On Jan. 28, Sierra Madre canceled its annual youth production. Nine school districts had booked seats for the March adaptation of “Charlotte’s Web,” with 2,600 children, along with 400 teachers & parents, planning to lớn attend. But paying actors & other personnel minimum wage & overtime for six weeks of rehearsals và 46 performances, along with payroll taxes & other employee costs, would have added $38,000 lớn a $52,000 budget, Lebano said.

The theater’s summer production schedule will continue as planned because it was already budgeted for union-covered actors, he said. As a result of AB 5, however, three stage managers will switch from independent contractors khổng lồ employees.

North Hollywood’s Deaf West Theatre, which offers plays in sign language, has also been forced lớn adapt. Its actors và stage managers were already employees, but for its next production, 11 people will gain employee status, including the director, producer, designers và sign-language interpreters.

“We are trying the best we can to be in compliance, while keeping our company afloat,” said Deborah Reed, the theater’s business manager.

Small theaters & dance and opera companies are pressing for an AB 5 exemption, but Actors Equity Assn., the national union for actors và stage managers, backs the law as is. “Those who bring a show to lớn life should be fairly compensated & have the same standard protections that employees in other industries have,” Executive Director Mary McColl said.

Last month, the group released a survey of union & nonunion actors and stage managers treated as independent contractors. Eighty-two percent reported being asked to work for less than minimum wage, 28% reported being denied unemployment benefits and 16% reported being injured while working, including falls during dance lifts — injuries not covered by workers’ compensation.



Gonzalez, the AB 5 author, is not offering a carve-out for performing arts groups. But earlier this month, she & other legislators proposed a one-time $20-million state budget appropriation for grants lớn small arts organizations “that make a good-faith effort lớn comply with AB 5.”

Meanwhile, enforcement of the law is underway.

Gov. Gavin Newsom’s budget allocates $21.68 million lớn crack down on misclassification under AB 5, và to process an expected jump in workers’ compensation claims. It grants contractors a one-year exemption from state fees normally assessed to lớn set up LLCs & limited partnerships.

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The state has set up a detailed website & scheduled more than 80 seminars across the state khổng lồ explain the law. At Glendale’s Verdugo Jobs Center last month, two Employment Development Department officials projected 41 slides on AB 5, distributed fact sheets on the underground economy and answered questions from some 30 attendees.

The three-hour session delved into rules for language interpreters, nurses, plumbers và construction and restaurant workers. A woman who hires independent contractors khổng lồ sell flowers on the street wondered whether she was exempt. An insurance agent expressed frustration that “calling EDD is lượt thích falling into a deep hole. They never gọi you back.”

Ken Johnson, one of the EDD presenters, sought khổng lồ reassure. “Our goal is to cấp độ the playing field for all employers,” he said. “We’re asking you all khổng lồ help the effort.”