California law makers are tackling the labor of the gig economy by reclassifying all contractors as employee’s, unless they pass a 3-point test …with exemptions.
Dynamex, a subsidiary to Canadian TFI intl., is a transport and logistics company based in Dallas. “Dynamex” was on the losing end of a contractor lawsuit back in April 30th, 2018.
Prior to 2004, Dynamex classified as employees drivers who allegedly
performed similar pickup and delivery work as the current drivers performed.
In 2004, however, Dynamex adopted a new policy and contractual arrangement under which all drivers are considered independent contractors rather than employees. Dynamex maintains that, in light of the current contractual arrangement, the drivers are properly classified as independent contractors.
The drivers took the company to court, combination to a result in April 30, 2018. The lawsuit “Dynamex Operations West Inc. v. Superior Court”, the courts ruled against Dynamex, and retroactively reclassified their once contractors as employees.
Fast forward to September 18th, 2019.
The State of California law makers successfully codified the “Dynamex” ruling into law, changing labor laws as we know them with Assembly Bill 5 (AB5). Under the new law, previously viewed contractors under the borello test are now presumed as employee unless the test results are met under a 3-point stringent “ABC” test.
(A) 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.
(B) The person performs work that is outside the usual course of the hiring entity’s business.
(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
AB5 imposes the ABC test for the California IWC Wage Orders, the Labor Code, and Unemployment Insurance Code.
Now, pertaining to Designers, Graphic Artists, and Illustrators. The law includes two sections of exemptions under the categories of, “Professional Services” and Business-to-Business (B2B)”.
Some have various criterias that need to be met to be deemed “exempt”. Often in laws, they need additional court rulings that help clarify and establish the law.
Right now, the reading of the law seems broad and quite far reaching, classifying every as an employee first, making the litmus test of contractor more specific and stringent, but making the narrower exemptions more general. Ie, does graphic design include UX/UI? I’d say you can make the argument as it stands right now.
Some reassurances, because AB 5 includes language like “Fine Artist” and “Graphic Design”, singled out with it’s own itemized listing in the law and under the “Professional Services” exemption list. Visual Arts can breathe a sigh of relief, as it is of my opinion that this law may make freelancing for entertainment and product in California much more difficult if it had been applied.
B2B also help Hollywood companies with their employees of Actors, Agents, Business managers. You can draw a line that this applies to design houses and design staffing agencies. Hollywood labor unions have put in the money to reassure its members of the exemptions.
This is not legal advise…
This analysis is not a substitute for individualized legal and tax advice. You should always consult their own professional legal and tax advisors.