While many companies are preparing for the California Consumer Privacy Act (CCPA) to go into effect on January 1, there is another California law effective January 1 that is already causing companies to take action.
Assembly Bill 5 (AB5) was introduced by California lawmakers concerned about employee misclassification. It is intended to ensure that workers are not classified by employers as independent contractors when lawmakers believe they should be classified as employees. Specifically, AB5 provides for stricter criteria that companies must meet when they claim their workers are independent contractors.
Companies that improperly classify workers as independent contractors are subject to numerous penalties, including civil damages ranging from $5,000 to $15,000 per violation. They also face state fines of up to $25,000 per violation if the state finds that misclassification was done willfully.
While AB5 was created with so-called “gig economy” workers — think Uber and Lyft drivers — in mind, it has prompted concern from freelancers in a number of fields, many of which are part of the digital economy. In fact, AB5 specifically mentions photographers, writers and editors, and sets an exemption threshold for 35 content submissions per year for these workers.
Ostensibly based on this, Vox Media decided that it would not renew the contracts of approximately 200 writers who contribute to its sports website SB Nation. In a blog post, Vox Media’s director of team brands, John Ness, explained:
“In the early weeks and months of 2020, we will end our contracts with most contractors at California brands. This shift is part of a business and staffing strategy that we have been exploring over the past two years, but one that is also necessary in light of California’s new independent contractor law, which goes into effect January 1, 2020. That new law makes it impossible for us to continue with our current California team site structure because it restricts contractors from producing more than 35 written content “submissions” per year.”
While Ness stated that Vox does not plan to replace its California contractors with contractors in other states, the numbers demonstrate the effect of this decision on SB Nation: it’s losing 200 contractors and looking to hire about two-dozen full and part-time employees. As such, it would appear that the site will lose a significant amount of diversity in its content creator ranks as a result of the new law.
SB Nation is not the only company that has decided it is no longer feasible to work with independent contractors in California. For instance, online copywriting marketplace Scripted also announced that it will no longer work with Californians.
Why AB5 matters
California is home to a significant amount of talent. Because many tech and digital media companies, as well as agencies, are based in Silicon Valley, San Francisco and Los Angeles, many freelancers have naturally gravitated to California in part because it allows them to be in close geographic proximity to the companies that most need their services. This is true even in cases where they can work remotely.
There is also a certain cachet associated with being based in California. Put simply, it’s not unreasonable for freelancers to believe that it’s easier to find work if they live in California as opposed to, say, Alaska.
Although backlash against AB5 is growing and legal challenges to the law have already been filed, until there is certainty about the law’s interpretation and fate, it’s likely that as they evaluate their legal exposure, other companies will join Vox Media and Scripted in severing ties with California contractors to protect themselves.
Importantly, AB5 is not a law that companies based outside of California can ignore. The law covers workers based in California, so companies not based in California will still need to evaluate their exposure to the law as they could find themselves facing legal action in the state if questions are raised over the classification of their California-based workers.