Benefit of Counsel: Mixed Blessing:  California’s AB 5 Brings Much Promise to Staffing Firms But Proceed with Caution

Todd Wulffson discusses California's AB 5, which can be a boon for staffing firms, and why employers should proceed with caution

Excerpt:  "With the passage of AB 5, California codified the 2018 California Supreme Court Dynamex decision, which established dramatically stricter criteria that a business needs to prove to maintain a worker as an independent contractor.

The first major change AB 5 brings is that it assumes workers are employees. A worker can only be classified as an independent contractor if the company can show that the worker meets all three prongs of the “ABC” test:

A. The worker is free from control and direction in the performance of their services; and
B. The worker is performing work outside the usual course of the business of the hiring company; and
C. The worker is customarily engaged in an independently established trade, occupation, or business.

Independent contractors who don’t meet all three prongs need to be reclassified as employees, meaning that they will be entitled to benefits — including minimum wage, overtime pay and paid leave. Employers will also have to contribute to unemployment and workers’ compensation insurance for these newly reclassified workers.

Boon for staffing. Based on how strict the test is, this law is likely to be a boon to staffing firms because one of the best ways companies can avoid the liability associated with AB 5 is simply to retain a staffing firm to provide the workers they need to fill the roles (often part-time or short-term) previously held by ICs, and ensure that the employees are paid in compliance with California’s many wage, hour and other labor laws. In fact, many businesses in California are already encouraging their ICs to contact a specific staffing firm with which they have a relationship. The likely increased costs associated with retaining temporary employees through a staffing firm are more than offset by avoiding the threat of a wage-and-hour class action lawsuit being brought on behalf of their independent contractors — which can be done without their consent, as only one putative employee is necessary to initiate litigation."

Click HERE to read the entire article that appeared on the Staffing Industry Review on February 21, 2020.

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