What New California Law Means for Building Trades

Assembly Bill 5 is now signed into law and will take effect in January. Media coverage of AB5 focused more on how Uber drivers, DoorDash deliverers and others in the “gig economy” would be affected. Yet, under this new law, all California employers, including those in construction, must treat contract workers as employees unless an employer can show the work they perform meets a detailed set of criteria established by a California Supreme Court ruling last year.

New rules

When Gov. Gavin Newsom signed AB5 into law during a private ceremony in September, he wrote that it “will help reduce worker misclassification — workers being wrongly classified as ‘independent contractors’ rather than employees, which erodes basic worker protections like the minimum wage, paid sick days and health insurance benefits.”

As of January 1, 2020, California employers will be required to use the “ABC Test,” a strict method that helps determine if a worker is either an independent contractor or an employee. The criteria, established by a unanimous California Supreme Court decision last year, states a worker is only an independent contractor if they meet all three parts of the test:

  •  The worker is free from the control and direction of the hirer in relation to the performance of the work, both under the contract and in fact;
  • The worker performs work that is outside the usual course of the hirer’s business; AND
  • The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hirer

Any worker who does not meet these qualifications must be classified as an employee. Additionally, employers cannot hire someone to perform similar duties to that of their own employees and expect them to be classified as an independent contractor.

Independent contractor vs. employee

While the ABC Test greatly limits the types of workers that can be hired as independent contractors, in the construction industry there are some exceptions for certain professions such as architects and engineers. However, truck owners/operators, surveyors and geologists are not exempt.

Tightening the worker misclassification rules is something unions have pushed for over many years. After becoming law, Dan Langford, executive secretary-treasurer at the Southwest Regional Council of Carpenters, said, “AB5 will crack down on worker misclassification, which is rampant in the construction industry and violates fundamental rights like minimum wage and sick leave.”

Cesar Diaz, Legislative Director with The California Building and Construction Trades Council, said the state will also benefit if the construction industry operates above ground, generating tax revenue that could be used for public projects.

Others are still struggling with the law’s requirements and exemptions. Associated General Contractors of California (AGCC) CEO Peter Tateishi states AGCC’s members will adhere to whatever the law requires, but the group opposed some elements of AB5. For example, contractors no longer being able to use intermediaries to arrange services such as bringing water and materials to jobs is troublesome because it will be necessary to always have a direct relationship with the trucking owner-operator. Then, effective Jan. 1, 2022, contractors won’t be able to use owner-operators at all, instead using a company that has employee truckers. Thus, as AGCC works to create guidelines to help members comply, they will continue to work to change some of the bill’s requirements.

Here to help you navigate

The Southern California Contractors Association is the leader in labor relations with the most experienced team in Southern California. Our Association works diligently to ensure our members are receiving proper communication in regard to policy and compliancy. If you’ve got questions about AB5, SCCA’s labor department is available to provide information.

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