Assembly Bill 5 was passed and signed into law in September 2019. The bill instituted the new California worker classification test, the ABC Test (Labor Code section 2750.3), which states that a worker is an independent contractor only if the company hiring the worker establishes that all of the following conditions are satisfied:
(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.
(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
The ABC Test will be applied retroactively in regard to overtime, minimum wage, and related actions. The test became effective in regard to EDD payroll tax determinations and workers’ compensation determinations on January 1, 2020. It is this (B) prong of the ABC Test that is hardest for California businesses to meet, as many businesses use contractors within the “usual course” of their business activities. However, some contractor relationships are outside of the “usual course” of the business; and, there are numerous exceptions to the ABC Test within AB 5, including but not limited to “business-to-business” relationships, referral agency relationships, licensed construction contractors, and professional services, such as freelance writers, marketing professionals, grant writers, graphic artist, real estate agents, etc.
Williams & Associates has drafted numerous AB 5-compliant independent contractor agreements for various industries and professions. We can discuss your particular business model, and draft AB 5-compliant independent contractor agreements for your business.