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What You Need to Know About California's AB5 Law

Giselle Solorzano
Posted by Giselle Solorzano on August 14, 2020

UPDATED 8/14/20 8:42am PT:

When the clock struck 12 on Jan. 1, 2020, California Assembly Bill 5  (or AB5, for short) went into effect. It's probably one of the most important pieces of employment legislation in California history — and one that will significantly impact medical professionals in “The Golden State.” AB5 determines whether the workers you hire in your medical practices are:

  • Contractors or
  • Employees

So what does this all mean? Well, get AB5 wrong and expect hefty fines for non-compliance — up to $25,000 per violation

We know what you're thinking: How do you know whether workers are employees or contractors? It's not easy, right? In this updated guide for 2020, we clear up the confusion once and for all.

California's AB5 Law

What is AB5, Exactly?

A quick history lesson:

  • California Governor Gavin Newsom signed AB5 into law on Sept. 18, 2019.
  • AB5 originates from a California Supreme Court ruling in 2008 called the "Dynamex Decision." 
  • Some people (and the media) refer to AB5 as the "gig worker bill." 
  • The purpose of the law is to regulate companies like DoorDash and Uber who hire large numbers of gig workers. 
  • AB5 became effective on Jan. 1, 2020.  
  • AB5 only impacts companies in California, but other states might pass similar laws in the future. 

AB5, in the simplest terms, reclassifies millions of independent contractors as employees. And these employees have the same rights as all your other employees. 

Want to easily avoid 10 common HR mistakes in your medical practice? Click here to download our free whitepaper!

How Does AB5 Work?

California's AB5 Law

AB5 uses something called the "ABC Test" to determine whether workers are contractors or employees:

  • A: "Is the worker free from the control and direction of the hiring entity in the performance of the work, both under the contract for the performance of the work and in fact?"
  • B: "Does the worker perform work that is outside the usual course of the hiring entity’s business?"
  • C: "Is the worker customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity?"

(Source: State of California)

But here's the kicker: AB5 presumes that all workers are employees. It's up to the company to prove the status of workers by applying the ABC Test. 

NOTE: Employers in California must satisfy all three parts of the ABC test. 

What are the Problems With AB5?

With everything else going on right now, it's difficult for healthcare employers to satisfy the three elements of the ABC Test. Plus, if the law considers workers "employees," companies might have to provide benefits to more people. These include:

  • Social Security benefits
  • Health insurance
  • Disability insurance
  • Paid sick days
  • Holiday pay
  • Overtime 
  • Death benefits
  • Retirement benefits
  • Workers' compensation 

Many of these benefits are discretionary and not mandated by law. However, deciding which employees get benefits will be a headache.

Are There Exemptions to ABS?

California's AB5 Law

Yes! Though AB5 impacts most employers in California there could be exemptions for:

  • Doctors
  • Dentists
  • Physicians
  • Optometrists
  • Physical therapists
  • Veterinarians
  • Surgeons and
  • Other medical professionals

Where a court determines that the ABC Test does not apply, a different classification called the "Borello test" will apply. It focuses on how much "control" a company has over these workers. For example:

  • Whether workers are engaged in a business/occupation that is different from the employer, such as an optometrist in an optometry practice.
  • Whether workers engage in work that is a regular or integral part of the employer’s business. 

The Borello test is a multi-factor test with 13 stipulations, so medical employers should enlist the services of an HR professional like HR for Health to help them make sense of the law. Otherwise, they could face expensive penalties for non-compliance. Click here for a free consultation

Final Word

It might be confusing, but AB5 (and the subsequent Borello test) is important for healthcare practices in California. To stay compliant with AB5, work with HR for Health, who will keep your business running smoothly. Click here to schedule a call now!


If you are a current HR for Health client and have additional questions, please reach out to our team by calling 877-779-4747. Please keep in mind that due to an influx in questions related to the COVID-19 outbreak, our response time may be slower than usual, but we will get back to you as soon as we can! 

If you are not a current HR for Health client and have additional questions, please schedule an HR consultation with us by booking time here or calling us at 877-779-4747, option 1. 

Learn more about the California's AB5 Law with the experts at HR for Health. Contact us by phone at 877-779-4747 or by emailing today.

HR for Health is one of the nation’s leading Human Resources Management Systems (HRMS) used by small to mid-sized practices. 


Quick note: This is not to be taken as legal or HR advice. Since employment laws change over time and can vary by location and industry, consult a lawyer or HR expert for specific guidance. Learn about HR for Health's HR services

Topics: Role reassignment, Independent Contractor vs. Employee, Wages, california, employment law, employment updates

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