How Does California AB5 Affect Contracts on Upwork?

How Does California AB5 Affect Contracts on Upwork?

It’s Not That Hard To Figure Out

The answer is… it depends. But the new law is not that hard to figure out, and many of the contractors on Upwork are not affected by the law.

AB5 redefines contractors more narrowly. It is trying to close a loophole that has allowed companies to classify as contractors people that should have the protections of regular employees. That definition can be summed up in three questions:

  1. Is the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact;
  2. Doe the worker performs work that is outside the usual course of the hiring entity’s business; and
  3. Is the worker customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.

This prevents employers from classifying as contractors people that the employer (1) controls in regards to which hours are worked, and (2) uses to staff their primary business function. Also, contractors must (3) be engaged in an independently established trade. This means they have other clients, they market their services to the public, and they have an established business that provides the given services.


Who Is Exempt from AB5?

For example, as a software development contractor focusing on small businesses and entrepreneurs, I am clearly classified as a contractor under AB5. My clients don’t control my schedule or manner of meeting my contractual obligations. The small businesses that I service aren’t software development companies. My clients aren’t using Upwork to augment their regular staff. Software development isn’t my clients’ business, that is why they are hiring me! Thirdly, I have multiple clients and an established business offering software services.

Who Needs to Be Reclassified Under AB5?

On Upwork I occasionally see companies trying to augment their existing staff with a contractor. This is the sort of thing that may be covered by AB5. These employers can still advertise on Upwork, but they should get legal counsel before classifying people as contractors. Any employer that expects to control the hours of their workers, is trying to staff their main line of business, or isn’t hiring people with an established trade outside of the contract will should get legal advice before classifying people as contractors.



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