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California’s new employment law is starting to crush freelancers

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From CNBC, Elaine Pofeldt discusses the effect of California’s legislation, AB5, on companies and freelancers. Elaine writes:

AB 5 has sent shock waves through the world of companies that employ freelancers and the independent workers whom they rely on since it passed. The law codifies the ABC test — which helps employers determine who should be classified as a freelancer — giving exemptions to some types of freelancers, such as architects, doctors, insurance agents, lawyers, grant writers, real estate agents, tutors, truck drivers and manicurists.

The law, which takes effect Jan.1, 2020, could cost the employers a lot of money. It says the exemptions are retroactive. The California Supreme Court just announced this week it will make a decision on whether the ABC test applies to contractor relationships prior to April 30, 2019, before the California Supreme Court opted to use the ABC test in the court case Dynamex Operations West Inc. v. Superior Court of Los Angeles.

California Gov. Gavin Newsom speaks during a news conference with at the California State Capitol on August 16, 2019 in Sacramento, California.

It has many unicorns, including Lyft, DoorDash, Instacart and Uber worried about their business model scrambling to launch a voter initiative to roll back the effects of AB 5. The statewide measure, the Protect App-Based Drivers & Services Act, proposed for a November 2020 ballot, would give ride-share drivers and couriers an earnings guarantee of at least 120% of minimum wage and certain benefits and protections but allow them to remain independent contractors who set their own work hours.

Franchisors are also worried that their franchisees could be reclassified from their traditional designation as independent contractors to employees. The International Franchise Association lobbied to get an exclusion from the law, but it wasn’t granted.

“I don’t believe legislators realized the impact this had,” says Gene Zaino, founder and executive chairman of MBO Partners, which studies the freelance economy and provides back-office services to freelancers. “This was really designed to create a safety net for people that needed it. Legislators didn’t realize at the same time, they impacted millions of people in thousands of businesses that are using freelancers, even though that was not their intent. A lot of businesses are paralyzed, in terms of ‘everyone needs to be on payroll.'”

As Zaino explains, many freelancers work independently by choice on terms they prefer. Many are concerned that they’ll have to trade in their freedom for structure, potentially losing their ability to set their own hours. “There are people that want to be independent contractors,” says Zaino. “They want the freedom and the choice and don’t want their clients to be afraid to use them.”

And California’s new regulation is expected to have a ripple effect throughout the nation’s $1 trillion gig economy.

Read the full story at California’s new employment law is starting to crush freelancers

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