ab5

AB5 stands for Assembly Bill 5, a California statute enacted in 2019 that codified the three-part ABC test from the court ruling Dynamex Operations Corp. into state labor law. The law governs when a worker should be treated as an employee rather than an independent contractor, with broad implications for payroll, benefits, and labor rights.

Under the ABC test, an employment relationship exists unless the hiring entity can demonstrate all three elements: A) the worker is free from control and direction in the performance of the work; B) the work performed is outside the usual course of the hiring entity’s business; and C) the worker is engaged in an independently established trade, occupation, or business. If all three apply, the worker is treated as an independent contractor; otherwise, the worker is an employee.

Exemptions: AB5 provides certain exemptions for specified categories of workers and contracting relationships. The statute lists or provides for exemptions to accommodate particular professional fields and business-to-business arrangements, leading to a mosaic of classifications across industries. The exemptions were a focal point of policy debate, litigation, and reform discussions.

Prop 22 and subsequent reforms: In 2020, California voters approved Proposition 22, which exempted app-based drivers from AB5 and instead created a separate framework that classifies them as independent contractors with a package of negotiated benefits and protections. The broader application of AB5 remained contentious, prompting ongoing legislative and legal adjustments affecting freelancers, small businesses, and gig economy companies.

See also: Dynamex Operations Corp. v. Superior Court.