California Assembly Bill 5 - Upwork Comment

[Miriam H]

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Sara J B wrote:

AB-5 actually has a limit of 35 articles per year for a publication. However, "publication" isn't defined. It's not clear if that would apply to the subsidiary or parent company and all of their subsidiary publications.

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Yes, I came across two interesting articles on the topic (the first one linked to the second):

The Week article 

Legal News Blog 

Having read both, here is what is interesting to me. In a way, I see the argument regarding 35 articles to a publication, not that I agree, I just see the logic. Publications have a minimum quota of articles/words/whatever the metric is, they need to fill. They create the demand, and the demand has a floor (if you will). So I see the argument that should have more staff writers vs. relying on freelancers and provide those staff writers with stability/consistent income. Of course, there is so much content out there, I presume the value of that content has diminished considerably, hence the economics of freelancing vs. staff writers. 

However on the Uber/Lyft example, consumers create the demand, not Uber or Lyft. And the drivers can reject fares as much as they want, which is not the case with a taxi that has "shifts." 

Regardless, I am not happy with this law however I don't expect it to impact me significantly, at least not in the short term as I am willing to be paid as employee with taxes withheld if the company prefers that approach. 

[Preston H]

I think California may be trying to put toothpaste back into the tube.

[Mary I]

I do freelance writing and write at several other online platforms besides Upwork. I got a notice from one of them that starting next year, CA freelancers will only be able to do 34 jobs per year for them and will no longer have access to most of the open available orders. But I have not recieved any notice like this from Upwork or the other platforms where I work. This law will really limit how much I can earn at this other site. 

[Trasie S]

I have continued to follow the story, and it appears as if everything we discussed in September is incorrect and doesn't apply to January. 

All 1099 employees in California must be reclassified as W2 employees on January 1. You can continue to support your clients as an independent contractor if you can pass the "ABC Test". 

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

Most freelancers and independent consultants will not be able to pass the #2 of the ABC test. There are exceptions to the law, but most of them are for doctors and certified professionals, not for project managers like me. The 34 limit rule for writers is an exception that was supposed to be fair to writers, but this is why California writers are being let go by their clients in large numbers this week. 

Upwork's policy is that worker classification is the responsibility of the Clients. So, clients who want to hire freelancers who are based in California that cannot pass the ABC test above can pay Upwork to employ the freelancer through Upwork Payroll and the freelancer will receive W2 income, not 1099. 

I have a feeling that clients on this platform will just start to hire non-Californians.

I have a meeting this week with an employment lawyer to understand this better, as I have mentioned, most of my clients are local and word of mouth and I need to understand this. I spoke to my CPA about this earlier, the state hasn't issued guidelines about how to enforce the new law, and his feeling is that we can continue with business as usual as the state will initially look to target the big Silicon Valley firms for enforcement and one-person shops like most of us will only be noticed when we file a complaint against an employer. 

I will continue to update this as I learn more. 

[Miriam H]

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Trasie S wrote:

I have a feeling that clients on this platform will just start to hire non-Californians.

I have a meeting this week with an employment lawyer to understand this better, as I have mentioned, most of my clients are local and word of mouth and I need to understand this. I spoke to my CPA about this earlier, the state hasn't issued guidelines about how to enforce the new law, and his feeling is that we can continue with business as usual as the state will initially look to target the big Silicon Valley firms for enforcement and one-person shops like most of us will only be noticed when we file a complaint against an employer. 

I will continue to update this as I learn more. 

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Thank you for updating, I've been following this closely as well.

I'll be curious what you hear from a lawyer.  My understanding is the "freelancer" is the one who can bring a case, and I have every belief this will be tested in court against a large company. 

That said, I'd like to know if size of company has any bearing on enforcement? For instance, if you are an LLC and have no employees, how does that work?  

[Rene K]

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Trasie S wrote:

I have a feeling that clients on this platform will just start to hire non-Californians.

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Wait, while AB-5 applies to California based hiring companies, are you sure that the contractors have to reside in California for the law to apply to them? It was my understanding (but I may be totally wrong) that the location of the contractor doesn't matter. 

I skimmed through AB-5, and haven't found anything that says contractors must be in California. Again, I may have missed it...

[Mary W]

My major client, located in California, who is NOT an Upwork client, has made me an employee as of 1/1/20.  This was on the advice of his accountants and his own reading of the law.  (Client is a well-respected California attorney). I am NOT in California.  I don't much care either way although it's nice to know that I will now be paid by direct deposit every other Friday, although I will get less because of deductions for social security, etc.  We'll see how it all shakes out.

[Miriam H]

Upwork has spoken. I just received an email from them, I would imagine it would be posted somewhere on the forums. Essentially they are summarizing the law and recommending that we consult an advisor to see what makes sense for our specific business.

They also say this applies to all independent contractors in CA, which is what I knew.

[Preston H]

re: "I will get less because of deductions for social security, etc."

I'm very sorry to hear that.

It is unfortunate that you will receive less pay due to this law.

Even though you don't even live in California.

[Preston H]

So maybe this law has an upside for freelancers (like myself and most of us) who do NOT live in California:

"Company owners with independent contractors must now decide whether to hire them as employees or look for help in other states."

Read: "California law will force small businesses to rethink staffing"

If businesses can save money simply by hiring freelancers OUTSIDE of California, this is a "win-win" situation for businesses and freelancers everywhere (except California).

CNBC's article on this topic quotes Upwork:

The article discusses freelancers who enter into talks with potential clients, and then end up NOT getting hired after the clients find out that the freelancer lives in California.