California Assembly Bill 5 (AB5) was signed into law on September 18th, 2019 and went into effect in California on January 1st, 2020. The law is more popularly known as the "gig worker bill", it affects contractors and business owners and reshaped the rules around classification of workers as employees.
The new law requires that a strict three-part ABC test be used to determine whether workers are employees or contractors for the purposes of California employment laws which includes complying with minimum wage, overtime pay, unemployment insurance, workers compensation insurance and paid family leave requirements.
Under the ABC test, for a worker to be classified as an independent contractor a hiring entity must first prove the following:
(A) The worker is free from the control and direction of the hirer in connection with the performance of the work, practically and in the contractual agreement between the parties.
(B) The worker performs work that is outside the usual course of the hiring entity’s business.
(C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity/company.
It's worth noting that not all businesses that rely on gig workers in California are affected. More than 50 professions and types of businesses are exempt, including insurance agents, attorneys, real estate agents, and certain types of business-to-business contractors and referral agencies will have to adjust to the new law.