Both in and outside of California, small businesses will have to reconsider who it can hire as a new CA law takes effect January 2020. The law makes it harder for companies to treat workers as independent contractors. Although the law affects companies of all sizes and out-of-state businesses that use California contractors, it likely will have a greater impact on the many small businesses that have hired independent contractors because of limited staffing budgets.
This has already resulted in companies announcing layoffs in several industries. Right before Christmas Vox Media (backed by NBCUniversal) informed hundreds of freelance writers they would lose their jobs as the company prepared for the new law to go into effect. This scene was repeated across multiple companies across the country.
According to the AP:
Independent contractors and freelancers have long been a sore point for federal and state officials who contend that many of these workers are doing work that employees do. When employers classify workers as independent contractors, they avoid taxes including the 6.2% of salary and wages companies must pay for Social Security and the 1.45% they must pay for Medicare. Employers must also pay for workers’ compensation and unemployment and disability insurance.
Uber and Lyft have said from the beginning that their businesses would be destroyed if they are required to reclassify their drivers as employees.
There are exemptions for professionals like doctors, lawyers, architects and insurance brokers, but they must have the freedom to set their own hours, negotiate their own fees and exercise their own judgment as they do their jobs. Workers like graphic artists, freelance writers and travel agents can also be exempt if they have similar autonomy. And people who work in barber shops, hair and nail salons and spas can have exemptions, but they have to set their own rates and hours, choose their own clients and be paid directly by the clients.
According to the California Globe:
Members of the California Senate Republican Caucus offered 11 different sets of amendments to AB 5 to provide exemptions for additional industries, responding to the many industries already exempted by Gonzalez’s bill: forestry, health care professionals, newspapers carriers and distributors, physical therapists, interpreters, translators, single truck owner-operators, non-profits, franchisors, franchisees, and design, excluded from AB 5. Senate Democrats blocked every one of the amendment efforts.
Companies (in and out of CA) that don’t comply with the law face the possibility of penalties running into the tens or hundreds of thousands of dollars. This will lead to companies across the country not using California workers as it’s easier to find independent contractors anywhere as remote working has only increased due to the improvement in technology and communications.
Ultimately, like many laws that start in California, this will be embraced by union-friendly state legislatures across the country. The impact on independent contractors and the gig economy will likely rage from bad to devastating.