Under the recently passed Assembly Bill (AB) 5 in California, many businesses are now forced to reclassify their self-employed workers as employees.
In recent news, Uber and Lyft are battling a lawsuit filed by the California Attorney General and city attorneys from San Francisco, Los Angeles, and San Diego who claim the two ride-share companies misclassified their workers under the new law. They believe that the two companies are depriving their workers of employee protections such as minimum wage, paid overtime, sick leave, and unemployment insurance. A judge recently granted a preliminary injunction that requires the companies to stop classifying drivers as contractors.
In turn, both Uber and Lyft have announced that they will need to suspend operations if they are required to restructure their companies and reclassify their workers. Lyft had made an official announcement earlier last week that they would need to shut down their app as soon as last Thursday evening. However, a California appeals court grated both Uber and Lyft an emergency stay not long after Lyft’s statement. This allows them to continue their operations while they fight to appeal the recent AB 5 ruling.
According to California’s Department of Industrial Relations, AB 5 requires the application of the “ABC test” to determine if workers in California are employees or independent contractors. A worker is considered an employee and not an independent contractor unless the hiring entity satisfies all three of the following conditions:
- The worker 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
- The worker performs work that is outside the usual course of the hiring entity’s business; and
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
If Uber and Lyft are able to classify their drivers as independent workers instead of employees, they avoid the requirement to pay for costly benefits that apply to full-time staff. As of now, neither of these two companies are profitable, and they’ve already taken a serious financial hit since the start of the coronavirus pandemic. They may still have a chance at exemption from AB 5, however, if Proposition 22 passes this November. The measure would support app-based ride-hailing and food delivery services, as well as provide additional benefits for these gig workers.
Employer Tips for Properly Classifying Workers in California
Angela Reddock-Wright has provided tips for businesses looking for guidance regarding the AB 5 law:
- Conduct a review of each employee in your workplace to determine if, based on their duties and other factors, whether they are an employee or an independent contractor.
- If it is determined that the person is an employee, determine if the employee is exempt or non-exempt.
– Generally speaking, exempt employees operate with a high level of discretion and judgment and supervise other employees. Exempt employees are not eligible for overtime pay. In a state like California, employers are required to pay exempt employees at least twice the state minimum wage.
– Generally speaking, non-exempt employees are administrative and nature and operate at the direction of a manager or supervisor. Non-exempt employees are eligible to receive overtime pay.
- If an employee is determined to be non-exempt, the employer must pay the employee for all overtime hours and ensure the employee receives all federal and state required meal and rest breaks. For example, in California, non-exempt employees should receive a 10-minute rest break for every four hours worked and a 30-minute meal break after 5 hours of work.
- For all employees, whether exempt or non-exempt, employers should ensure they are observing all federal and state equal employment opportunity, anti-discrimination, and harassment laws. Employers should also ensure they are carrying the necessary insurances, such as workers compensation insurance, and providing any required medical or other benefits. For example, in California, employers are required to provide both part and full-time employees with up to 3 paid sick days per year.
Experienced Employment Law Attorney, Mediator, Arbitrator, Investigator, Legal and Media Commentator
Angela Reddock-Wright is an employment and labor law attorney, certified workplace and Title IX investigator (AWI-CH), mediator, and arbitrator in Los Angeles, CA. Known as the “Workplace Guru,” Angela is an influencer and leading authority on employment, workplace/HR, Title IX, hazing, and bullying issues.
Angela is a regular legal and media commentator and analyst and has appeared on such media outlets as Entertainment Tonight, Law and Crime with Brian Ross, Court TV, CNN, ABC, CBS, Fox 11 News, KTLA-5, the Black News Channel, Fox Soul – The Black Report, NPR, KPCC, Airtalk-89.3, KJLH Front Page with Dominique DiPrima, the New York Times, the Washington Post, the LA Times, Yahoo! Entertainment, People Magazine, Essence Magazine, the Los Angeles Sentinel, LA Focus, Our Weekly and the Wave Newspapers.
Angela also is a member of the panel of distinguished mediators and arbitrators with Judicate West, a California company that represents the gold standard in dispute resolution. She also owns her own law firm, the Reddock Law Group of Los Angeles, specializing in workplace and Title IX discrimination, harassment, and sexual assault investigations.
This communication is not legal advice. It is educational only. For legal advice, consult with an experienced employment law attorney in your state or city.