California's new law takes effect January 1 and it will curtail freelancers and independent contractors—including those who work in tech—and other states are following suit.
California residents who rely on the once-booming gig-economy and culture are finding freelance work increasingly challenging. And it's something aspiring Californians, who also want a flexible freelance schedule, need to take note of, because change is coming soon.
And while those who freelance outside of California may be sighing with relief that they are "safe" (and not to mention likely to get the overflow of work that used to go to Californians), other states are stepping up to adopting the same laws. New Jersey, New York, and Illinois are considering clamping down on the misclassification of employees as independent contractors.
Laying down the law
California Gov. Gavin Newsom signed Assembly Bill 5 (AB5) into law Sept. 18, 2019, which codifies and expands on the 2018 California Supreme Court "Dynamex decision" that made it harder for companies to classify workers as freelancers rather than employees. They were misclassified as "independent contractors" rather than employees.
The intent, it is believed by many, was a good one. Too many companies had hired freelancers to do the work of full-time employees, but without the benefits of health insurance or PTO (paid time off).
SEE: The gig economy: An insider's guide (free PDF) (TechRepublic)
It's about the Benjamins
Millions were pledged by Uber, Lyft and Doordash (the primary targets for AB5) for a ballot measure to allow them to continue to qualify drivers as independent contractors. But, there's a lot of money behind Uber and Lyft. Conceivably, those companies will be able to afford AB5's ruling.
Conversely, newspapers are folding, and magazines are shuttering (e.g. dozens of Sports Illustrated staff were laid off, to be replaced by freelancers, albeit not freelancers from California). If you were reliant on a California writing/editing/photography gig, you will probably have to supplement your income with something else.
Upwork's 2019 Freelancing in America survey reported 57 million American freelancers contribute an excess of $1 trillion to the economy each year.
The new California law, which takes effect on Jan. 1, 2020, will require companies to reclassify contract, freelance and contingent workers as full-time employees eligible for benefits, a guaranteed $12 to $13 state minimum wage and protections under the state's employment law.
The employer must deduct Social Security and Medicare taxes from the freelancer's fees, and contribute to worker's comp and unemployment insurance. It will put a damper on what freelancers can use as tax deductions.
And this is not a one-industry issue, despite the initial response as being all about freelance writers.
"Creatives" get a pass
While there are some 20 jobs that will be exempt from the law, including "creatives" (artists), travel agents, fishermen, stockbrokers, accountants, architects, doctors, insurance agents, lawyers, grant writers, real estate agents, tutors, truck drivers, and manicurists, many people who gig are going to find their income seriously curtailed.
A cursory look at Upwork's job listings include the following, which include, yes, tech writers, but also DEV-OPS engineers, IT network troubleshooters, web scrapers, developers, project managers, Python developers, IT help desk support, SEO workers, full stack engineers, digital marketing specialists, SEO site auditors, web flow developers, front end developers, technical marketers, iOS developers, link builders, tech pack designers, Angular developers, Django developers, Google tag managers, Google analysts, React developers, and Ab Initio developers.
Even though Massachusetts has a long-held 1990 statute that the California law was based on, the most western US state has an apparently high enough freelancer profile to raise alarm and concern.
The ABC test
Previously, California had applied a 10-factor test, often distilled down to one core factor, the "right to control," explained Danielle Lackey, chief legal officer, Motus, developer of management mobile reimbursement software to help employers with cost and IRS compliance.
"Though all 10 factors were evaluated, this test placed strong emphasis on whether a hiring entity or a contractor had control over the means used to accomplish their work in determining whether someone was an employee or an independent contractor."
The new law features what they're calling an ABC test, established in the 2018 California Supreme Court ruling. Lackey said: "The Dynamex ABC test deems all workers as employees, unless the hiring entity can demonstrate that the worker in question meets all three of these conditions:
- The worker is free from the control and direction of the hiring entity in performing the work (both under the contract for the performance of the work and in fact).
- The worker performs work that is not within the usual course of the hiring entity's business.
- The worker has an independently established business that provides the same services to others."
New Jersey and New York
Lackey said: "Last month, New Jersey Sen. Stephen Sweeney introduced S4204. This bill closely mirrors AB5," and added, "New York State Senator Diane Savino and Assemblyman Marcos Crespo also recently introduced a bill that would have created a new employment classification for gig economy workers called 'dependent workers' who would have the right to organize and collectively bargain.
"It also would have given these 'dependent workers' protections against wage theft and record-keeping requirements. While the bill stalled, they will no doubt look at the issue further to craft new legislation for the upcoming 2020 session – which may more closely resemble AB5."
California freelancers are thrown a bone
Meanwhile, California's AB5 resolved that freelance writers, photographers, editorial cartoonists and editors could be hired by publishers for up to 35 separate "content submissions" a year.
Initially, the drafters of the bill wanted to allow only 25 or fewer annually, and the freelancers countered with 52, before they settled on 35. They did agree that, for example, if a tech writer is covering SXSW, for example, the articles they produced could be bundled and considered a single submission. Interestingly, graphic designers have a full exemption.
Chane Steiner, CEO of the credit repair education site Crediful, admitted the law is a "blow to the freelancing world," as "freelancing allows for flexibility that normal hourly jobs don't offer."
This new law inhibits the choices freelancers can make without becoming 'employed.' Employers will require different things from those they consider on the books as opposed to those who are hired for one-time gigs," Steiner added.
And, as far as Steiner is concerned, things don't look good for California freelancers, because it means "no longer working with California independent contractors or freelancers. My preference is to provide stability for my employees, but freelancers provide stability for some, keeping the company afloat, and allowing for gig employees to keep their autonomy and flexibility. California law may hinder that."
For more, check out the 10 best cities for freelance workers on TechRepublic.
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