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Parsing AB5’s Impact

Employers and lawyers gathered for an early-morning seminar at Lewitt Hackman to hear more about legal updates for the coming year. Primarily, the Jan. 16 session focused on California’s anti-gig economy law, AB5. It also provided a crash course on changes to the Private Attorneys General Act of 2004, or PAGA, and minimum wage increases, among other employer-centric concerns. Attorneys Sue Bendavid and Tal Burnovski Yeyni from the Encino firm led discussions and answered questions about AB5’s ABC test which became effective Jan. 1. According to the test, a worker is an independent contractor only if: • 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. • The person performs work that is outside the usual course of the hiring entity’s business. • 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 new test greatly narrows who would be considered a contractor due to the nature of certain professions, like a freelance writer or graphic designer that typically works on contract. Nearly 200 freelancers for Vox’s SB Nation in Los Angeles, for example, were let go and 20 employees were brought on because of AB5. Freelancers perform work that falls within the hiring entity’s business, a direct violation of Prong B in the ABC test. Exemptions for a variety of professions sprang up prior to Gov. Gavin Newsom signing the bill, expanding to 11 pages within the bill, Bendavid and Yeyni said. Lawsuits sprang up as well, filed by Uber and Postmates, as well as freelance journalists. “When AB5 passed, a lot of industries were not included in the list of exemptions.  Businesses across California essentially claimed AB5 ignores the realities of their practice,” said Yeyni. “It is beautifully written and very convincing, I think, and they specifically mentioned the author of AB5, Assemblywoman (Lorena) Gonzalez. The lawsuit claims Assemblywoman Gonzalez is hostile toward on-demand companies,” added Yeyni, referring to the Uber and Postmates lawsuit. “They said, you have all these exemptions but you deliberately did not include on-demand companies.” The team at Lewitt Hackman briefly touched on the law’s retroactivity too, stating that it is indeed retroactive for claims that fall under the wage order, and also for exemptions. “They said yes, it’s retroactive, but if an exemption applies, we’ll allow you to apply the exemption as well, under some circumstances. If someone sued today under AB5, it’s retroactive for things that fall under the wage order, like rest breaks, meal breaks, overtime, record keeping,” explained Bendavid. “There’s another part of the bill, which you must also consider.  It says if you currently have employees, they must remain employees even if an exemption might otherwise apply. Even if they would qualify for an exemption, too bad for you. You can’t go backwards and reclassify them now.” The firm’s advice to employers when it comes to AB5 was simple: Get in compliance while courts and legislators slowly attempt to narrow who is affected by the law, and pay close attention to existing contracts. “I got a call yesterday from a woman who has a professional services-type firm in the construction industry,” added Bendavid. “They have 60 employees and 200 independent contractors – that’s going to be a red flag.  You will be asked how could that possibly be? Do you have people that work for you who do the same thing as those independents? Think about looking at your contracts.” “The moral of the story is, if you have vendors or independent contractors that are providing services to you, then you have to look at your contracts, your facts, and see if the workers qualify, or not,” Bendavid told attendees. Other notable changes for employers discussed at the seminar included a decision which prevents plaintiffs from attempting to circumvent arbitration by filing a PAGA-only claim. A minimum wage increase is also slated for July 1 with employers that have 26-plus employees looking at $15 per hour, and $14.25 per hour for employers with 25 or fewer employees.

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