Hector Castellanos was on his way to pick up a passenger for Lyft ride-share service in the Bay Area in 2017 when another car slammed into his Toyota Prius.
He needed shoulder surgery and couldn’t work for eight months after the accident. But since drivers for Lyft and many other similar services are independent contractors and not employees, Castellanos didn’t have worker’s compensation insurance. With no wages coming in, his daughter had to drop out of college for two semesters to help the family stay afloat.
“My family suffered,” Castellanos said. “We almost lost our house.”
That’s why Castellanos, who is back driving for both Lyft and Uber now, has been rallying for months in support of Assembly Bill 5 — a law that, as of Jan. 1., makes it harder for companies to classify workers as independent contractors. The goal of the bill is to make sure companies aren’t using freelancers to save money by skirting labor laws that guarantee protections such as paid sick days, health care benefits, overtime pay and the ability to unionize.
But AB5 is a far-reaching bill that touches an estimated one million Californians, including many who don’t work for big corporations or resent their circumstances. And in the month since it kicked in, many traditional independent contractors — photographers, musicians, translators and others — have lost work. What’s more, some California companies have looked to out-of-state workers or otherwise shifted gears to avoid running up against AB5.
Such stories have triggered numerous challenges to the bill, with lawsuits, legislation and a ballot initiative pending that would exempt categories of workers or repeal the legislation entirely. Even AB5’s author, Assemblywoman Lorena Gonzalez, D-San Diego, has introduced place-holder legislation, which she told the Register will help sole proprietors and others navigate the new landscape.
In the meantime, confusion reigns. Many freelancers say they don’t understand how the bill affects them, or how it touches their industries, and they’re getting conflicting advice about how to navigate the new law.
Temecula-based band leader Mickie Arnett has been meeting recently with fellow musicians who feel their livelihoods — and the local music scene — are threatened by AB5. Arnett estimates he’s spent more than $2,000 on attorneys, business permits and other costs. He’s formed a limited partnership with his band mates to ensure he’s complying with the law when he pays them after gigs. He’s also told several musicians not to expect bookings this year and, to help cover new costs, he’s upped his band’s rate.
Those changes are spreading to other business owners.
Andy Doty, who regularly books Arnett’s band at his Old Town Blues Club in Temecula, said he’s debating whether to increase drink prices or add a cover charge so he can afford to offer live music. Both options, he knows, could mean a “death knell” for his business.
Court decision triggers law
A 2018 California Supreme Court decision launched AB5.
Two workers sued Dynamex courier service after the company opted to shave an estimated 30% from its labor costs by converting its entire staff into independent contractors. Dynamex lost the case. And in its ruling, the state Supreme Court bypassed a little-known measure called the “Borello test,” which California employers have been supposed to pass for decades to legally classify workers as independent contractors. Instead, the court established a much stricter “ABC test.”
To qualify as freelancers, the ABC test says California workers now must: A) Be “free from control” of whoever hired them while they’re doing the gig, B) Be doing something different from the work typically done by the person or company who hired them, and C) Be doing a gig that’s in line with the type of work the person typically does.
It’s the “B” in the ABC test that’s the kicker for most freelancers. If a band leader pays a musician or a language firm pays an interpreter or a newspaper pays a freelance writer, those jobs are within the employers’ normal scope of work, so they likely would not pass the ABC test.
Gonzalez, a former labor leader, wrote AB5 to codify that stricter test for freelance workers into law. It took effect Jan. 1, and Gov. Gavin Newsom included $20 million for AB5 enforcement in his proposed 2020-21 budget.
A dozen other states already have similar policies on their books, Gonzalez noted. But none are as strict as California’s law.
Companies in breach of AB5 face fines of $5,000 to $25,000 per violation. And they can be forced to cover payroll taxes, overtime pay and other costs retroactively if workers had been properly classified as employees.
So far, there are no reports of the state punishing employers for violating AB5.
That’s true even as companies such as Uber, Lyft and Postmates, among others, thumb their noses at AB5. Many are continuing to list workers as independent contractors as they file a lawsuit and propose a ballot initiative to challenge the bill.
Meanwhile, Glendale attorney Samuel Dordulian said his firm has been getting so many calls each week from companies and workers with questions about AB5 that he can’t keep up. Most of the time, he said, they want to know if there’s a way for them to get around the ABC test. Almost always, he added, the answer is no.
More exemptions needed?
Some two dozen categories of workers — ranging from doctors and lawyers, to manicurists, real estate agents and commercial fishermen — were granted at least partial exemptions from AB5. Those workers can use the much-looser Borello test to qualify as independent contractors.
Employment attorney Laura Heckathorn of Los Angeles said it will be up to the state and the courts over the coming years to further define some of the vague exemptions in AB5, such as who qualifies as “fine artists” or what it takes for a gig worker to be his or her own business.
In deciding which categories of workers should be exempt, Gonzalez said her team met with labor groups, studied case law, and looked at industries that had a history of not protecting workers.
Gonzalez said music industry representatives didn’t agree on terms before the bill was signed, so changes might still come for freelancers in that arena. Otherwise, Gonzalez doesn’t expect any other AB5 exemptions for entire categories of workers.
But other industries and legislators disagree, and continue to push for carve-outs.
For example, in January a judge ruled that federal law, not California’s AB5, should apply as protection for some 70,000 independent truck drivers. Freelance journalists and photographers also have asked the court to exempt them from AB5, though a judge shot down that request.
The bill does allow freelance writers and photographers to contribute up to 35 works each year to any one media outlet before the law kicks in. But many freelancers routinely pass that number. And even before AB5 took effect, Vox Media’s digital sports media company SB Nation announced it was dropping some 200 freelancers in California due to the new law.
With newspapers already reeling from years of closures and cuts amid declining revenues, State Sen. Pat Bates, R-Laguna Niguel, introduced one bill that would exempt freelance journalists from AB5. Another would permanently exempt newspaper carriers, who were granted a one-year reprieve under AB5.
“You don’t punish thousands of people because of a bad actor,” she said, referring to Dynamex. “Let’s use a scalpel and not a sledgehammer.”
Bates tried in 2019 to repeal AB5, but her effort failed. Now a group of Republican Assembly members and Senators have introduced a new bill and a constitutional amendment that would repeal AB5 and reinstate the Borello test, though they face a battle in the Democratic-controlled legislature.
Another bill would exempt independently-owned businesses with fewer than 100 employees and less than $15 million in gross revenue over the past three years. And yet another bill would exempt freelance interpreters and translators.
But Bill Glasser, founder of Language World Services in Northern California, hopes AB5 sticks for his industry. He converted his interpreters from freelance to staff a decade ago, a move that he said cost him money but improved his company’s quality. Glasser said his interpreters are screened and trained before they’re sent out to fill language gaps at schools, hospitals and other care facilities.
“I don’t think that should be left up to some independent contractor that was found on Craigslist last week,” he said.
While the quality of workers who adapt to AB5 will likely be solid, Temecula club owner Doty worries about the bill’s unintended consequences.
“I’d really hate to see the local music scene deteriorate, evaporate or even lessen as a result of this bill.”
