Details About The Law

The law is called Assembly Bill 5 (commonly shortened as AB 5). It codifies and expands the Dynamex decision, a 2018 California Supreme Court ruling that makes it more difficult for companies to designate workers as independent contractors. AB 5 will officially take effect on January 1, 2020. However, it is already beginning to change how companies hire California-based freelancers.

Writers and photographers who submit more than 35 published works per year per client can no longer be designated as freelancers. Instead, they must be designated as employees.

Uber, Lyft, and DoorDash have pledged to spend $30 million each on a 2020 ballot initiative to reverse AB 5.

Professions exempted from AB 5 include doctors, dentists, psychologists, insurance agents, stockbrokers, lawyers, accountants, engineers, and real estate agents.

Ridesharing workers were the original focus of freelancer laws in California; however, several more industries are being targeted with the passage of Assembly Bill 5.

How It Affects Freelancers

It seems that many freelancers, at least those who work remotely within California, are now being encouraged to move out of the state just to find work. In the future, it’s possible that the majority of applications for remote freelance jobs will even include statements about “Applicant can’t reside in California”. Even before this bill was passed, it wasn’t uncommon to see exclusions based on residence. A number of freelancers have already received notices from companies saying that they will no longer be able to work for them.

What will freelancers from California do as a result? Will they stop freelancing altogether? Will they move out of the state? One thing is for sure, California is openly discouraging people who want to work flexible jobs and enjoy the many freedoms that come with contract work.

Will AB 5 work (pun intended)? Most freelancers say “No”.

How It Affects Companies

Sure, large tech companies like Uber, Lyft, and DoorDash will be negatively impacted. However, they aren’t the only businesses affected. Small startups based in California will seemingly have even less of a chance to succeed now. Imagine owning a bootstrapped company that is just trying to survive. Having to convert freelancers to full-time employees adds an extra financial burden. This makes it less likely that new companies will establish themselves in California.

Ten or fifteen years ago it would seem impossible, maybe borderline crazy, to think that US-based tech startups would choose an HQ location outside of California. Today, however, it is more and more common. Small towns and mid-size metros across the US have the resources, particularly internet connectivity and talent pools, required for a wide range of industries. Moreover, several places actually incentivize people (not just businesses) to live and work there.

Silicon Valley is an amazing and hilarious television program. Silicon Valley, in the real world, is a place of innovation. However, this is beginning to change with the passage of AB 5 and similar laws. Is it crazy for companies to relocate outside California? No, it’s actually a rational choice.

Can AB 5 Actually Be Helpful?

The intention of helping workers have additional benefits isn’t likely to work in reality. Many companies have already decided to limit California-based freelancers to only 35 pieces of content. Some people are trying to find workarounds for the law. For example, graphic designers are exempt from the law but photographers aren’t. If you do a lot of photo editing, are you really just a photographer? These types of uncertainties in the law make it ineffective. Another important question to ask is… how would freelancers actually benefit from lawsuits against organizations that don’t comply with AB 5? This answer is yet another unknown.

A lot of places in the US and throughout the world have talented and smart people who want to be freelancers. Why should location be a limiting factor in this pursuit? Setting arbitrary rules without thinking of the long-term consequences for a large and growing segment of the population can be detrimental to both freelancers and companies. Yes, there is a need to prevent the state’s economy and businesses from adopting a “race to the bottom” mentality; however, AB 5 appears to be preventing people from pursuing work opportunities needed to make ends meet. This makes it a net negative for California’s freelancers.