AB5 Contractor Law in LA: What Businesses Still Get Wrong in 2026

If you run a business in Los Angeles and think you have already “figured out” AB5, there is a good chance you are still missing something. The AB5 Contractor Law in LA has been around for a while now, but in 2026, many businesses continue to misunderstand it in ways that can lead to fines, lawsuits, and a lot of stress.

Let’s break it down in simple terms, clear the confusion, and look at the common mistakes companies are still making.

What Is AB5 Contractor Law in LA?

The AB5 law is a California rule that decides whether a worker is an independent contractor or an employee.

Why does this matter?

Employees get benefits like minimum wage, overtime pay, and job protections. Contractors do not.

The ABC Test (Simple Explanation)

To classify someone as an independent contractor, a business must pass all three parts of the ABC test:

• ●A – Autonomy: The worker must be free from company control
• ●B – Business Type: The work must be outside the company’s main business
• ●C – Custom Work: The worker must run their own independent business

If even one of these is not met, the worker is legally an employee.

Why Businesses Still Struggle in 2026

• ●Confusion around the ABC test: Especially the “B” condition about core business work
• ●Outdated hiring practices: Many still follow pre-AB5 systems and old contracts
• ●Rise of freelance and remote work: Makes classification less clear in daily operations
• ●Worker preference misunderstanding: Businesses rely on what workers want instead of legal rules
• ●Stricter enforcement in 2026: More audits and complaints increase compliance pressure

Common Mistakes Businesses Still Make

1. Assuming a Contract Is Enough

Many businesses believe that if they have a signed contractor agreement, they are safe.

That is not true.

A contract does not override the law. Even if both sides agree to call it a contractor relationship, the government will still apply the ABC test.

Reality check: If it looks like an employee and works like an employee, it probably is one.

2. Misunderstanding “Outside the Business”

This is the most confusing part of AB5.

Example:

• ●A bakery hiring a freelance plumber is fine
• ●A bakery hiring a freelance baker is not

Why?

Because baking is the core business of the bakery.

Many LA businesses still try to hire contractors for roles that are clearly part of their main operations.

3. Ignoring Industry Exceptions

AB5 has several exceptions for certain professions, such as:

• ●Freelance writers
• ●Real estate agents
• ●Some creative professionals

But here is the problem. Even if an exception applies, businesses must still follow another test called the Borello test, which looks at control and independence in more detail.

Many companies stop at “we qualify for an exception” and do not go further.

4. Treating Contractors Like Employees

This is one of the biggest red flags.

If you are doing things like:

• ●Setting fixed work hours
• ●Monitoring daily tasks closely
• ●Providing tools and equipment
• ●Requiring exclusivity

Then your contractor is starting to look like an employee.

In 2026, enforcement agencies are focusing heavily on this behaviour.

5. Not Updating Old Practices

Some businesses are still using systems they created before AB5 or during the early confusion years.

What worked in 2020 may not work today.

Rules have been clarified, court decisions have shaped interpretations, and enforcement has become stricter.

If you have not reviewed your hiring practices recently, you may be at risk.

6. Assuming Small Businesses Are Safe

There is a common belief that small businesses will not be targeted.

This is not true.

Labour claims often come from workers themselves, not just government audits. One unhappy contractor can trigger a legal issue.

Real Impact on Businesses

Getting classification wrong can lead to:

• ●Back payment of wages
• ●Penalties and fines
• ●Legal costs
• ●Damage to business reputation

For growing companies, especially startups and service businesses in LA, this can slow down expansion.

Smart Ways to Stay Compliant

1. Review Every Role Carefully: Do not use a one-size-fits-all approach. Each role should be checked against the ABC test.

2. Redesign Work Structures: If a role is core to your business, consider hiring employees instead of contractors.

3. Work With Experts: Legal advisors or HR consultants can help you avoid costly mistakes.

4. Keep Documentation Clear: Maintain records that show why a worker qualifies as a contractor.

5. Train Your Team: Managers should understand the difference between contractors and employees to avoid accidental violations.

Key Takeaways

• ●The AB5 Contractor Law in LA is still widely misunderstood in 2026
• ●Contracts alone do not determine worker classification
• ●The ABC test is the core rule businesses must follow
• ●Misclassification can lead to serious financial and legal consequences
• ●Regular updates and expert advice are essential for compliance

Conclusion

The AB5 Contractor Law in LA is stricter in 2026, and even small mistakes can lead to serious costs. Most issues come from misusing contractors in core roles or treating them like employees.

To stay safe, follow the ABC test carefully, review your workforce regularly, and structure roles correctly from the start. Getting compliance right not only avoids penalties but also helps build a stable and trustworthy business.

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