Takeaway No. 1 – Audit Your Independent Contractor Agreements Now
Now that AB 5 has been signed into law, and the retroactivity of the law is codified, it’s critical to audit your existing independent contractor arrangements to determine whether any exception may be applied retroactively. Several exemptions, including the professional services and business-to-business exemptions, may be utilized now to mitigate against future claims. Ensuring proper classification now is also important because misclassification under California law can be costly. Misclassified workers can recover unpaid wages (e.g., overtime), meal and rest period premiums, unpaid business expenses, and significant penalties (e.g., waiting time, wage statement, and potential PAGA penalties. In addition, AB 5 gives the California Attorney General and certain City Attorneys the authority to seek injunctive relief against offending employers to prevent the continued misclassification of employees.
Takeaway No. 2 – Pay Close Attention To The Exemptions
Although the exemptions are broad, they are limited. Although several of the exemptions may appear to apply to your business on their face, the statute is littered with qualifications and hard to satisfy standards. And perhaps more importantly, even if an ABC test exemption applies, your independent contractor arrangements will still need to satisfy the Borello test.
Takeaway No. 3 – Joint Employer Test Remains
It’s important to remember that the ABC test and Dynamex should not apply to joint employer questions of liability, which remain governed by the Supreme Court’s decision in Martinez v. Combs, 49 Cal. 4th 35 (2010. AB 5 directs the ABC test to the “hiring entity” (i.e., the direct hiring organization).