While many female entrepreneurs and small business owners pride themselves on making a living as independent contractors, women in California are now having one hell of a time keeping their careers. Thanks to California Assembly Bill No. 5 (AB5), which went into effect on January 1, 2020.
Sponsored by Assemblywoman Lorena Gonzalez (D-San Diego) and signed into law by Governor Gavin Newsom, the reason for Assembly Bill No. 5 (AB5) is to set more restrictive labor laws for businesses working with independent contractors from California.
The bill’s ultimate goal is to protect Californian workers who have been misclassified as independent contractors rather than employees, so that all workers can receive employee benefits, like paid family leave and overtime pay. AB5 affects a great deal of entrepreneurial women in California. According to the U.S. Census Bureau, California has one of the greatest number of women-owned businesses in the country - over 1.3 million.
California has one of the greatest number of women-owned businesses in the country - over 1.3 million.
The Problem with AB5
Gonzalez’s intentions for AB5 may have been good, but independent contractors are now suffering, particularly women who are stay-at-home moms and chose the independent contracting lifestyle because they needed the flexibility. Many women need the freedom of being an independent contractor because they have a loved one they need to care for at home or they have a disability.
In many cases, AB5 has left businesses with the following three choices: 1) hiring independent contractors from California as employees, 2) minimizing how frequently they use independent contracts, and 3) not using independent contractors from California at all.
Gonzalez’s intentions for AB5 may have been good, but independent contractors are now suffering.
Women Never Asked for AB5
According to a Guided Financial 2019 study with over 2.7K entrepreneurial women, two of the main reasons why women want to own their own business is because they want to be their own boss and they are dissatisfied with corporate America.
Many independent contractors find AB5 insulting. For years, independent contractors have been negotiating their own contracts with a variety of businesses, whether they are journalists, web developers, event planners, or dance teachers. According to Assemblyman Kevin Kiley (R-Sacramento), who wants to appeal the new bill, more than 150 professions are impacted by AB5.
The Aftermath of AB5
The cost for businesses to turn independent contractors into employees is expensive, so many independent contractors are losing clients. Companies that keep independent contractors, who they later learn should have been classified as employees, will have to pay fines, penalties, back pay, and benefits. If companies willingly employ an independent contractor knowing they should have been an employee, they face a $25K civil penalty per violation. It is a very scary time for businesses and independent contractors.
Why bother with AB5 when you can hire out-of-state contractors who don’t have this absurd law?
As a freelance writer myself, I have already lost two of my clients who didn’t want to deal with AB5. I don’t blame them. Why bother with AB5 when you can hire out-of-state independent contractors who don’t have this absurd law? Don’t look so cozy over there though, East Coast. New York and New Jersey are interested in passing similar laws.
So What’s a Girl To Do?
Should businesses choose to keep independent contractors from California, the income they’d earn is not enough to support them due to AB5’s submission cap. A freelance writer is now limited to writing 35 articles for a company per year, and a freelance photographer is limited to submitting 35 photographs to one outlet per year.
Gonzalez claims this can be easily fixed if independent contractors operated as true small businesses, sole proprietorships, and limited liability corporations. However, that’s not what independent contractors want for their careers. Rallies have begun to take place, which aim to gain support of AB1928, a bill that would overturn AB5.
Politicians are in the bad habit of making sweeping reforms without consulting the very workers they claim to be helping.
Politicians are in the bad habit of making sweeping reforms without consulting the very workers they claim to be helping. Let us hope that other states learn from California's mistake and continue to allow independent contractors to live and work as they choose. It may already be too late for the women of California.