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California’s new labor law AB 5 is already changing the way companies treat workers

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At Yogala Studios, a cozy little storefront in Echo Park, teachers work mostly part-time, with some teaching only one class per week. Workshops are offered in “the ancient spiritual, philosophical and meditative traditions of yoga and tantra”, as well as in “meditation to tap into our creative potential to overcome negative blockages”.

Recently, however, the studio had to face a very modern challenge: it reclassifies its instructors, who had always been independent contractors, as employees with extended labor protection due to the radical new law of California, Assembly Bill 5.

They don’t complain. “They are yogis,” owner Samantha Garrison said. “They are looking on the bright side.”

Across California, AB 5 is disrupting workplaces, prompting lawsuits, furious social media campaigns and a multi-million dollar voting initiative, sponsored by Uber, Lyft, Postmates and DoorDash, which are refuse to grant employee status to their tens of thousands of drivers.

But as critics call for exemptions and even a repeal of the law, many California businesses large and small are quietly adopting strategies to comply with the law, which came into effect last month. This has not been easy.

AB 5 sets a new standard for hiring independent contractors, requiring many to be reclassified as employees covered by minimum wage, overtime, workers’ compensation, unemployment insurance and disability.

As businesses also have to cover social security and employee health insurance taxes, costs can rise. “I knew I had to bring more money,” said Garrison, who hiked his prices from $ 22 to $ 26 per class.

So far, her clients are not upset, she says. “I contacted every member. But it was a huge headache – a lot of paperwork and technical details. “

The new law was born from a 2018 California Supreme Court ruling in a case brought by drivers for Dynamex Operations West, a parcel delivery company. The court ruled that the company had illegally transferred its status from an employee worker to that of an independent subcontractor in order to increase its profits.

Workers have driven similar misclassification cases across the United States for decades, as companies shifted from once-stable jobs to independent contractors and temp agencies in what some experts call “a workplace.” rift”. But the nation growing income inequality pushes for stricter laws.

Samantha Garrison, right, owner of Yogala Studios, with yoga instructor Jannica Klingborg.

(Dania Maxwell / Los Angeles Times)

In California, industries such as construction, concierge, trucking – and even yoga – had fought to retain independent contractors according to a complex set of rules that the Dynamex ruling abandoned, replacing them with a stricter, simpler test.

To be independent contractors according to the court’s new “ABC test”, modeled on the laws of Massachusetts and several other states, workers must (A) work independently, (B) perform work other than what the company does and (C) offer their work to other companies or to the public. All three conditions must be met.

Under Stream “B” of the standard, a yoga instructor working for a yoga studio would not be considered an independent contractor any more than a driver for a transport company, a dry fitter for a home builder, a housekeeper for a cleaning franchise, a caddy for a golf club or an actor for a theater.

About a million Californian workers may need to take the ABC test to continue working as part-time or full-time independent contractors, the state legislative analyst’s office estimated this week. The count excludes tens of thousands of independent truckers, freelance writers and the drivers of carpooling and food delivery technology platforms, whose status is currently being reviewed in court.

The new law forces companies to scramble to consult with labor lawyers, accountants and human resources specialists on how to avoid lawsuits and regulatory fines that can result from misclassification. Penalties for violations range from $ 5,000 to $ 25,000, and companies can be responsible for back pay.

“There is no industry that has not tried to bring in independent contractors,” said Anna Towne, an executive at Bizhaven, a consultant in Sacramento. More than 30 companies, including construction, agriculture and tech companies, have sought her company’s advice on how to comply with the law, she said, and nearly all of them have passed their independent contractors with employee status.

“Some want to fly by the seat of their pants,” she added. “But we explain that it’s not worth risking their business. They could get into hot water.

Towne also emphasizes the positive aspects. “As an employer, they have a lot more control,” she says. “They can dictate what is expected, how much time to spend, how to work with customers and with their other employees. With independent contractors, you can’t have this type of control. “

In one respect, AB 5 reduced the scope of the court’s decision. He has carved out some twenty professions such as doctors, lawyers, insurance and real estate agents, engineers, stock brokers and others considered to have bargaining power over their working conditions. The bill’s mover, MP Lorena Gonzalez (D-San Diego), is preparing a bill to exempt a few others, including musicians, freelance writers and photographers. But most industries, especially those that employ low-wage workers, will likely remain covered by the ABC test. Others can still be prosecuted for misclassification under the earlier more flexible rules.

Accountants are among the exempt professions of AB 5, but during tax season they traditionally hire independent contractors to help with client returns and payroll processing.

“The law has an immediate impact,” said Anthony Pugliese, executive director of the California Society of Certified Public Accountants. Its 45,000 members, he said, use “armies of temporary paraprofessionals. Thousands – it could be tens of thousands – are now on the payroll, taken into payroll deductions, and being offered benefits. “

Pugliese is not opposed to AB 5. “You wouldn’t have this law if there was no abuse where companies keep people as temporary workers for a year, two years,” he said. he declares. “At one point it’s like – he’s a real employee, why do you treat him like that?”

But his association is preparing one-day training sessions on AB 5 compliance “because there is so much gray area,” Pugliese added. Temporary tax preparers often work 90 or 120 days between January and April, he said, “but what if I only use them for a week? Who wants benefits for a week? That does not make sense. “

Sheila Scoville is President of Omni Therapy, a 30-employee referral agency in Los Angeles.

Sheila Scoville is President of Omni Therapy, a 30-employee referral agency in Los Angeles.

(Jason Armond / Los Angeles Times)

A “business-to-business” exemption in AB 5 allows entrepreneurs setting up a sole proprietorship, limited liability company, partnership or corporation to avoid the ABC test if they meet certain criteria. In recent months, hundreds of truckers with their own large rigs in the ports of Los Angeles and Long Beach have formed as independent businesses in the hope of qualifying.

Sheila Scoville, president of Omni Therapy, a Los Angeles-based benchmark agency with 30 employees, is an executive who hopes the B2B arrangement will save her business – but she isn’t sure. Omni connects health care agencies with physiotherapists, occupational therapists and speech language pathologists who work as independent contractors to help elderly patients recover from stroke or surgery at home.

Unlike doctors, dentists and psychologists, these therapists have not been exempt from the law, which aims to ensure that therapy companies pay their workers, most of whom work on site, as employees and provide them with protections. work.

But Scoville argues that the traveling professionals she refers can be paid by health agencies, hospitals or Medicare and don’t necessarily work for Omni, although she has handled their paperwork and reduced their fees. When the California Department of Employment Development audited Omni against the pre-AB 5 rules, “they interviewed our therapists, reviewed my text messages and emails, reviewed clinical notes and last year, after 18 months of pain, I left without any responsibility ”. she says.

But if the ABC test were applied and Omni’s 500 therapists were considered his employees, Scoville calculated that workers’ compensation alone would cost him nearly a million dollars a year.

To work around the problem, after consulting with lawyers, she informed the 500 therapists that they should get their own business licenses or LLCs. In the past month, around 150 have quit smoking. “They weren’t happy,” she said. “They are afraid of the law.”

Now Scoville added, “I’m looking to provide service in other states. We started this month in Arizona. I don’t know how long I will be able to continue in California. “

For-profit companies aren’t the only employers who have to adapt to the law.

“AB 5 hit us like a ton of bricks,” said Christian Lebano, artistic director of Sierra Madre Playhouse, one of 28 small nonprofit theaters in the Los Angeles area. “No one lives in a small theater. Actors and designers do it because they love the work or want to be exhibited.

“AB 5 hit us like a ton of bricks,” said Christian Lebano, artistic director of Sierra Madre Playhouse.

(Dania Maxwell / Los Angeles Times)

On January 28, Sierra Madre canceled its annual youth production. Nine school districts had reserved places for the March adaptation of “Charlotte’s Web,” with 2,600 children, as well as 400 teachers and parents, planning to attend. But paying actors and other staff minimum wage and overtime for six weeks of rehearsals and 46 performances, plus payroll taxes and other staff costs, would have added $ 38,000 to a budget of $ 52,000, Lebano said. .

The theatre’s summer production schedule will continue as planned as it was already scheduled for union actors, he said. Following AB 5, however, three stage leaders will move from independent contractors to employees.

North Hollywood’s Deaf West Theater, which offers plays in sign language, has also been forced to adapt. Its actors and stage managers were already employees, but for its next production, 11 people will gain employee status, including the director, producer, designers and sign language performers.

“We do our best to be in compliance, while keeping our business afloat,” said Deborah Reed, theater business manager.

Small theaters and dance and opera companies are pushing for an AB 5 exemption, but Actors Equity Assn., The national union of theater actors and managers, supports the law as is. “Those who bring a show to life should be compensated fairly and have the same standard protections as employees in other industries,” said CEO Mary McColl.

Last month, the group published a survey of union and non-union actors and managers treated as independent contractors. Eighty-two percent said they were asked to work for less than the minimum wage, 28% said they were denied unemployment benefits, and 16% said they were injured on the job, including falls during dance steps – injuries not covered by workers’ compensation.

Gonzalez, the author of AB 5, does not offer an exclusion for performing arts groups. But earlier this month, she and other lawmakers proposed a one-time budget allocation of $ 20 million for grants to small arts organizations “that make a good faith effort to comply with AB 5.”

Meanwhile, law enforcement is ongoing.

Governor Gavin Newsom’s budget allocates $ 21.68 million to crack down on misclassifications under AB 5 and to address an expected increase in workers’ compensation claims. It grants entrepreneurs a one-year exemption from the state fees normally assessed for setting up LLCs and limited partnerships.

The state has set up a detailed website and programmed more than 80 seminars across the state to explain the law. At Glendale’s Verdugo Employment Center last month, two officials from the Employment Development Department showed 41 slides on AB 5, distributed fact sheets on the underground economy, and answered questions from around 30 participants.

The three-hour session delved into the rules applicable to language interpreters, nurses, plumbers, and construction and catering workers. A woman who hires independent contractors to sell flowers on the street wonders if she is exempt. An insurance agent expressed frustration that “calling EDD is like falling into a deep hole. They never call you back.

Ken Johnson, one of the EDD presenters, sought to reassure. “Our goal is to level the playing field for all employers,” he said. “We ask all of you to contribute to this effort.”



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