AB5: What Does It Mean to You (Corporate America)

AB5 has a lot of implications for corporate America. Let’s explore them.

AB5 took effect at the start of the new decade, and it wreaked havoc for a lot of freelancers and VBOs in California. In a similarly-titled recent blog, we dove deep into AB5 and discovered what it meant for VBOs in the state and across America. This time, we’re doing the same thing but from the perspective of corporate America so businesses and enterprises can know how to navigate this new environment.

AB5 codified the Dynamex Decision into law, requiring that employers pass a three-part ABC test to properly classify a worker as an independent contractor. Note that the onus is on the employer — that’s you, corporate America — not the worker to make this determination. The employer must classify a worker as an employee unless they can demonstrate that: 

  • The worker is free from the control or direction of the hiring entity.
  • The work being performed is outside the hiring entity’s usual course of business.
  • The worker is customarily engaged in an independent trade, occupation, profession or business that is of the same nature as the work being performed. 

To qualify a worker as an independent contractor, an employer must meet all three requirements. If any one of them is violated, the employer must consider that person an employee and grant them the benefits associated with traditional employment — health insurance benefits, paid sick leave and vacation time, unemployment insurance, and workers’ compensation, and payroll taxes among other things. 

All of this can get really expensive really quickly, and while larger enterprises may be able to swing bringing on more employees, smaller businesses often can’t afford to without significantly impacting their bottom line. 

Alternatively, employers can choose to simply sever ties with their independent contractors, as we’ve seen Vox Media do to more than 200 of their contributing writers. But this isn’t really a win-win for anyone. Freelancers lose income and opportunities, and businesses lose access to the skill-specific, on-demand, cost-saving talent they’ve come to rely on. 

Still, employers are rightfully hesitant to work with freelancers and VBOs in the state because a court that finds that a business willfully violates the law can fine that business between $5,000 and $25,000 per violation, and that’s a hefty price to pay. 

Many employers believe they are insulating themselves against AB5 by choosing not to work with freelancers and VBOs in California only, but similar legislation has come to several states. New York, New Jersey, Illinois and a few other states are considering adopting legislation modeled after AB5. 

What’s worse? There’s federal legislation in the Senate right now called the PRO Act that includes pretty much a copy-and-paste of the worker reclassification language used in AB5. It’s also got some troubling stuff about unions that employers should be wary of. If passed, this bill could kill the gig economy as we know it and stifle employers’ ability to work with independent contractors altogether

If you are an employer in corporate America who wants to ensure that the PRO Act doesn’t bring the same problems AB5 has nationwide, we’d like for you to join us in the fight. VBO Nation has put together a simple petition imploring lawmakers in Washington to vote no on the PRO Act and similar legislation that interferes with employers’ and freelancers’ ability to carry out their business as they please. 

The government is trying to overstep their boundaries and negatively impact livelihoods across America. If you want to make your voice heard, we ask that you show your support and sign it. You can access the petition here and here. It takes less than a minute to sign and you’ll be doing your part to protect worker and employer freedoms across America. We hope you’ll stand with us. And check out our Advocacy Platform for the latest updates about AB5 and the PRO Act.

Chantel Baul

I’m a skilled communicator with more than four years’ experience in digital and print content creation, who has a keen ability to adapt messages for diverse audiences. I have demonstrated proficiency in editorial writing conventions, social media strategy, brand reputation management, and interdisciplinary collaboration. I’m a driven and progressive researcher with an aptitude for storytelling. I'm also a proud Public Affairs Officer in the United States Army Reserve.

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