The Coast News Group
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More than 1 million independent contractors have been affected by the controversial Assembly Bill 5 law, according to the California Legislative Analyst’s Office. File photo

LAO report details AB 5 enforcement, effects

REGION — More than 1 million independent contractors have been affected by the controversial Assembly Bill 5 law, according to the California Legislative Analyst’s Office.

The law, which was authored by Lorena Gonzalez (D-San Diego), expanded the Dynamex court decision and applied the “ABC” test, which reclassifies contractors as employees unless specific requirements are met under the “ABC” and Borello tests.

However, the LAO reports the 1 million does not include self-employed managers, who may be small business owners; truckers, journalists or drivers, depending on the outcome of several lawsuits.

The LAO also reported the Department of Industrial Relations (DIR) and Employment Development Department (EDD) requested the legislature delay on acting on the workload proposals for several reasons. Those include what would the departments accomplish with the resources, what is the frequency for appealing tax audit findings and what will happen if different state entities, in applying the “ABC” test, reach different conclusions.

Gonzalez, meanwhile, has come under fire from thousands of contractors across the state and recently announced amended language to the bill to remove the 35-submission cap for journalists, allowing photographers to sell images to third parties and $20 million to fund a grant program for small nonprofit community arts programs transitioning contractors to employees.

The language for those exemptions and programs, though, has yet to be submitted under Gonzalez’s clean-up bill, AB 1850. The LAO could not estimate how many contractors would be hired as W2 employees.

Gonzalez has also claimed business-to-business relationships, such as a contractor forming an LLC, would be exempt. However, the EDD recently said B2B would not be exempt, according to The Coast News representatives at a seminar in San Diego several weeks ago.

“We will move up the B2B language in code to ensure folks understand it is the first exemption and specify that such a (sic) exemption is allowable for freelance writers,” Gonzalez tweeted on Feb. 6.

The LAO also reported on the costs and staffing required to enforce AB 5, noting the DIR has been budgeted for 103.5 positions and $17.5 million per year for three years.

According to the LAO, the Division of Workers’ Compensation (DWC) said it requires 73 positions “on an assumption that workers’ compensation claims would increase by 10 percent due to AB 5.” The DWC, per the report, states 1.8 million, or 10% of the state’s workforce, would be reclassified as payroll employees.

“The administration did not provide a clear justification for how it arrived at this assumption,” the LAO report reads. “Alternatively, we estimate that roughly 1 million contractors will need to meet the ABC test to remain independent contractors, and that fewer than 1 million will be reclassified and hired as employees as a result.”

As for employment data, the LAO said there is none as the law went into effect on Jan. 1. The report also states the LAO cannot “predict” the number of contractors who will become employees, but said it is likely it will be less than 1 million for several reasons.

One is some are small business owners, artists or accountants; other contractors may meet the “ABC” test and continue as they were; and finally, some businesses may hire all or some of their contractors or decide to stop working with California workers altogether, which is already happening.