July 13, 2020

Volume X, Number 195

July 13, 2020

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July 10, 2020

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AB 5, California’s Gig-Work Law, Could Mean Inconsistent Federal and State Tax Treatment for Workers

On Sept. 18, 2019, Governor Gavin Newsom signed Assembly Bill No. 5 (AB 5) into law in California. The landmark legislation, which came into effect Jan. 1, 2020, promises to significantly expand the number of workers treated as employees for state tax and labor purposes. Although the legislation was aimed at participants in the “gig economy” (i.e., freelancers) it has much broader application. Early estimates suggest that as many as one million workers in California will be affected by this legislation. Moreover, for some businesses, it may result in workers having an inconsistent treatment for federal and state purposes.

Under the prior law, California’s Employment Development Department (EDD) and courts would apply an 11-factor analysis from S.G. Borello & Sons, Inc. v. Department of Industrial Relations to determine whether a worker should be classified as a worker or independent contractor. AB 5 codifies the three-part test for determining independent contractor status as established in Dynamex Operations West, Inc. v. Superior Court.

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About this Author

G. Michelle Ferreira, Greenberg Traurig Law Firm, San Francisco, Silicon Valley, Tax And Private Fund Litigation Attorney

G. Michelle Ferreira is an attorney in the Silicon Valley Office and counsels individuals, partnerships, estates and corporations in tax disputes with the Internal Revenue Service and state and local tax agencies, including the California Franchise Tax Board, the State Board of Equalization, the Employment Development Department and county assessment appeals boards.

As a former tax litigator for the Internal Revenue Service, Michelle brings unique experience to clients who have complex and sensitive tax and penalty disputes. Michelle represents...