In summary

We need to consider the small businesses and employers that have been impacted by the enactment of AB 5 and COVID-19.

By Manuel Cosme Jr., Special to CalMatters

Manuel Cosme Jr. is a small business tax specialist at Vacaville-based Professional Small Business Services Inc., manuel@psbs-inc.com. He is former chair of the California Hispanic Chamber of Commerce and the NFIB California Leadership Council.

As California inches toward progress on COVID-19 vaccinations, we must face overlapping challenges of an unprecedented health crisis and an economic crisis. At the top of the list of issues we must deal with: California’s business climate; it is one of the worst in the country. 

Once the pandemic tore through our communities, small businesses were forced to shut their doors and jobs were lost at a speed that no one could have prepared for. And now, what we need is to get people safely back to work, and we need to do it fast. 

A year ago, Assembly Bill 5 was enacted into law. While Proposition 22 saved the day for gig economies and Assembly Bill 2257 created a carveout for professional services and music, we need to consider the outlying small businesses that have still been impacted. AB 5 and COVID-19 was a double punch for so many businesses and employers in this state. 

We have seen the consequences of reclassifying certain categories of independent contractors, as employees. When the bill became law, Californians lost their flexibility to work their own schedules and be their own boss. Employers were required to provide their employees benefits, restrict them to work for one entity and totally revamp their business models in order to accommodate. On top of the new costs and logistics of hiring a worker full time rather than as an independent contractor, lawsuits over classification shortly followed. 

The loss of the majority of independent contracting work in California equals a massive loss in jobs. And today, it means limited opportunities for work, exacerbating the unemployment crisis brought about by COVID-19. In addition to job loss, employers are faced with the burden of making sure that they are properly classifying their employees, at risk being fined, or worse, sued.  

The lawsuits that followed AB 5’s enactment take extraneous time both on the companies and civil justice system. It wasn’t just Uber and Lyft that faced litigation – local businesses everywhere struggled to adhere to the new regulation.

In fact, because AB 5 is set up to be applied retroactively, not only can an employer be sued for misclassifying an employer today, they can be sued for a misclassification that happened any time in the past four years. These cases are still be litigated in the midst of the COVID-19 pandemic. 

Ever since its passage, AB 5 has become a trial attorney’s favorite new excuse to bring suit against hardworking business owners in order to make a profit. With its technicalities and its retroactive application, AB 5 simply makes it too easy for entrepreneurial lawyers to take advantage of the law. So, lawsuit after lawsuit continues to be filed, and business after business will continue to go under.

It costs a lot of time and resources to fight off a lawsuit, and California business owners simply can’t afford the risk given the fragility of the economy. When AB 5 was enacted a year ago, no one saw the COVID crisis on the horizon. But today, it is just one more reason to scrap AB 5. It’s time we bring proper reform to this destructive law so that California can finally have the chance to recover from the economic, coronavirus-led recession, without these roadblocks in their way.

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