The U.S. Supreme Court has made the news in recent days. In a recent order, the Supreme Court denied review of California’s (controversial) AB 5—a law that, by default, classifies workers as “employees” instead of independent contractors.
The distinction between “employees” and “independent contractors” is crucial, especially in the Golden State, where employees are entitled to stringent legal protections that independent contractors lack. These protections include, for instance, meal, rest, and overtime protections. Enacted in 2019, AB 5 codifies a landmark California Supreme Court case known as Dynamex Operations West, Inc. v. Superior Court of Los Angeles and generally classifies a worker as an employee unless all three prongs of the so-called “ABC Test” are satisfied:
- A: The worker is free from the control and direction of the hiring entity—both under contract and in actual reality.
- B: The worker performs work that is outside of the hiring entity’s ordinary course of business (e.g., a plumber works at a computer repair shop)
- C: The worker is independently engaged in a business, trade, or occupation that performs the same type of work that the worker performs for the hiring entity.
In the absence of an applicable statutory exception, workers are deemed “employees” unless all three prongs of the ABC test above are met, thus entitling workers to privileges that independent contractors lack. As you can imagine, AB 5 has never been popular with businesses. But the Supreme Court’s recent refusal to hear a challenge to AB 5 means that AB 5 remains fully intact in California—and that hiring entities must be ever vigilant to correctly classify their workers as employees (barring an applicable statutory exception). The penalties for misclassification can be stark.
If you have further questions on the ruling of AB 5 and how this can impact your business, please contact us at info@mnklawyers.com.
This material is provided for informational purposes only. It is not intended to constitute legal advice, nor does it create a client-lawyer relationship between MNK Law and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material.
