Study: AB 5 May Have Reduced Total Employment in California
According to a recent study published by the Mercatus Center at George Mason University, Assembly Bill 5 (AB 5)—a California law that tightened rules for worker classification—may have contributed to a reduction in total employment in the state. Within this article our California employment lawyer provides an overview of AB 5 and highlights the findings in the study.
An Overview of Assembly Bill 5 (AB 5)
AB 5 is one of the most important labor laws enacted in California in recent years. The California Legislature passed AB 5 which officially took effect on January 1, 2020. The bill was designed to crack down on the “”misuse”” of independent contractors. The legislation codified the “”ABC Test”” for employee classification. The ABC test requires that a worker be considered an employee instead of an independent contractor unless all three of the following requirements are satisfied:
- The worker is free from the control and direction of the employer when performing the work in question;
- The worker is performing work that is outside the usual course of the ’employer’s business; and
- The worker is customarily engaged in an independently established trade, occupation, or business that is of the same nature as that involved in the work performed.
Study Finds Possible Reduction in Employment in California
A recent report from the Mercatus Center at George Mason University highlights the potential negative employment impacts related to AB 5 in California. The researchers determined that the law led to a 10.5 percent drop in self-employment and a 4.4 percent drop in overall employment in non-exempt occupants. Further, the researchers assessed that contrary to legislative intentions, there was no significant evidence of increased W-2 employment among affected occupations. In other words, the study indicates that businesses may simply be working with fewer freelancers, not converting freelancers to full-time employment.
Employers Must Ensure the Proper Classification of Workers
Whether or not AB 5 has achieved its goals, it is the law in California. Employers must comply with all relevant regulations. Remember, the ‘bill’s primary objective is to curb the misclassification of workers. It requires employers that are non-exempt to use the “ABC Test”” to determine worker classification. Businesses and organizations that are subject to the law are encouraged to proactively review and adjust their workforce classification practices to align with AB 5 requirements. Among other things, this includes conducting thorough assessments of contractual relationships and the nature of the work performed. Businesses that misclassify workers in California could face significant legal liability, including fines, penalties, and sanctions.
Get Help from a Worker Classification Lawyer in California
At Sloat Law Group, our California employment attorney is a diligent and experienced advocate for employers. If you have any questions about worker classification matters under AB 5, please do not hesitate to contact us for a fully confidential initial case review. Our law firm represents employers in Coachella Valley, Riverside County, and all across California.
Source:
mercatus.org/research/working-papers/assessing-impact-worker-reclassification-employment-outcomes-post
