This is actually a really good thread, because most people are surprised to discover that yes, those companies probably were "breaking the law".
As other posters pointed out, AB5 is relatively new, so the test is relatively stricter now, and only relevant in California.
More importantly though, employment classification is only challenged when a plaintiff files a lawsuit. Thus, even if someone is technically misclassified, if the relationship is mutually beneficial, nobody is going to complain. This goes on all the time, which is why most people are surprised to find out they were technically misclassified.
Case in point: I worked at a company (in a state much more permissible regarding employment law than CA, and pre AB5) that forbid using the term "contract-to-hire", even though that happened pretty frequently. Reason being that technically contract-to-hire is not legal unless there is a substantial difference in the work and relationship when the person is a contractor. Now, many times there is, but that phrase alone can make it seem like the work contractors do is too similar to the work employees do, which is why our legal department banned the phrase.
This is fascinating, although I still feel there's too much disagreement for me to have a clear picture of how this works in California.
I'll give a Dutch perspective (which perhaps applies to some degree to other parts of Europe):
Until 2016, clients had to proactively ask for a 'Verklaring Arbeidsrelatie (VAR)'. An 'explanation of the work relationship'. If I understand correctly, the contractor/freelancer had to prove that they had more clients than just that one, and it had to be reasonable. So no having five clients of which one accounted for 99% of all income.
If a client didn't ask for this 'VAR', it could cause problems down the road.
From 2016 on they changed this, but apparently the result has been a confusing mess, so in 2021 they'll try to clear up some of it.
Practically speaking, as a contractor, I've found that only the big clients (with legal teams, I imagine) would ask for a VAR, if at all.
Most of the time, whether working in Holland or Germany, I usually did the exact same work that their employees did. In some cases there seemed to be vague distinction where I worked on shorter projects and they did support and the like, but in practice that distinction was very blurry.
I suppose with some of these clients I could've caused trouble, but because I got paid well, often better than the full-timers (even with insurance and all that deducted), I didn't see any reason to.
My general impression is that NL is a bit more 'liberal' in these matters than many other parts of Europe, so I'd be curious to hear how this works in France/Germany/Italy, etc.
Does this apply also for incorporated /limited liability corporations owned by the contractor, in the Netherlands?
In Sweden, if you want to become contractor, you have two options - start a limited liability company of which you owns all shares (Aktiebolag). Or you can start a business in your own name (Enskild firma), which legally is not separate from your own liabilities.
In the first case, you are making yourself employed by the corporation you own. I do not know if there is any legislation that prevents that business from having just a single customer. But I know that in my own case, my business have had a single customer the entire time it has existed.
I don't know and am curious too, so I'll probably look into it at some point.
But I strongly suspect that this is one of those 'spirit of the law' situations. So I suspect that a company that doesn't want, well, liability, would avoid hiring an LLC that really is just one person working only for said company.
Outside of the VAR thing there already was laws that contractors can't make more than x% of their income from a single customer. If they do the customer would have to treat you as an employee.
Fair enough, but this is a bit splitting hairs. AB5 codified the standard put forth in Dynamex (which was decided in mid 2018), which was much stricter than the previous standard, the Borello test, decided in 1989, and that test more or less followed a common law interpretation that had been the standard.
This is actually a really good thread, because most people are surprised to discover that yes, those companies probably were "breaking the law".
As other posters pointed out, AB5 is relatively new, so the test is relatively stricter now, and only relevant in California.
More importantly though, employment classification is only challenged when a plaintiff files a lawsuit. Thus, even if someone is technically misclassified, if the relationship is mutually beneficial, nobody is going to complain. This goes on all the time, which is why most people are surprised to find out they were technically misclassified.
Case in point: I worked at a company (in a state much more permissible regarding employment law than CA, and pre AB5) that forbid using the term "contract-to-hire", even though that happened pretty frequently. Reason being that technically contract-to-hire is not legal unless there is a substantial difference in the work and relationship when the person is a contractor. Now, many times there is, but that phrase alone can make it seem like the work contractors do is too similar to the work employees do, which is why our legal department banned the phrase.