On January 1, 2020, many independent construction contractors began to feel the impact of California’s new law as it requires employers to treat contract workers as employees unless it can be proved the work they do meets exemption requirements. Ultimately, California Assembly Bill 5 (AB5) prevents independent contractors from working, “independently.” This could have serious consequences for both workers and the economy. However, as a general rule, AB5 leaves intact the traditional contractor-subcontractor relationship.
Who Does AB5 Affect?
In California, if one does any type of independent contractor work, the new law may have an impact on their classification. Essentially, if you contract with a company, you may be forced to work as an employee. The law is designed to crack down on misclassifying independent contractors, which is widespread in the construction industry. Some claim that general contractors are violating fundamental rights like minimum wage and sick leave by hiring independent contractors However, the key is for independent construction contractors to ensure they are complying with the criteria as established in the law. In many cases, the law will not impact an independent contractor at all.
What are the Criteria to Determine if Someone is an Employee or an Independent Contractor?
The AB5 law requires workers to take a three-part ABC test to determine if a worker is an employee or an independent contractor. When asked about the nature of one’s work, the criteria asks if their work…]
- is done without the direction and control of the employer.
- is performed outside the usual course of the employer’s business.
- is done by someone who has their own, independent business or trade doing that kind of work.
Independent construction contractors generally meet all three conditions, and ought to meet the criteria outlined in the “Construction Subcontract” exemption enacted by the California legislature as part of AB5.
The “Construction Subcontract” Exemption
AB5 excludes from its coverage relationships “between a contractor and an individual performing work pursuant to a subcontract in the construction industry” that meet certain criteria as follows:
- The subcontract is in writing.
- The subcontractor is licensed by the Contractors State License Board and the work is within the scope of that license.
- The subcontractor maintains a business location that is separate from the business or work location of the contractor.
- The subcontractor has the authority to hire and to fire other persons to provide or to assist in providing the services.
- The subcontractor carries the proper insurance.
- The subcontractor is customarily engaged in an independently established business of the same nature as that involved in the work performed.
Contractors should be fully aware that if they are not in strict compliance with AB5 they face significant potential liability, including but not limited to: unemployment insurance; workers’ compensation coverage, claims, and premiums; penalties; interest; and attorneys’ fees.
