A.B. 5 and Dynamex: What does this mean for employers and independent contractors?

By: Robert Bryson

On September 18, 2019, Governor Newsom signed Assembly Bill 5 into law[1]. A.B. 5 codified Dynamex Ops. W. Inc. v. Superior Court (2018) 4 Cal.5th 903 which dramatically redefined how the state classifies independent contractors vis a vie employees. A.B. 5 was drafted to target “gig” economy workers (i.e., Uber drivers, deliver drivers, and other similar workers ‘empowered’ by a tech platform). However, A.B. 5 goes far beyond bringing Uber and Lyft to heel – it affects newspapers, nail salons[2], and home cleaning services[3]. The ABC Test presumes you are an employee unless the hiring entity (your boss) can establish:

(A) you are free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and

(B) you perform work that is outside the usual course of the hiring entity’s business; and (C) you are customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

(Dynamex, supra, 4 Cal.5th at p. 957.)

However, Dynamex does not apply to all hiring entities, in all scenarios. Specifically, it is unsettled law if Dynamex applies retroactively.[4] Additionally, Garcia v. Border Transportation Group, LLC (2018) 28 Cal.App.5th 558, 570-71 held that Dynamex only applies to “wage-order claims.” The Fifth District’s holding was echoed by the California Department of Industrial Relations which issued an Opinion Letter dated May 3, 2019, confirming that Dynamex applies when a claim “derive[s] directly from,” or “rest[s] on” an obligation imposed by a wage order, the ABC test applies to determine questions of employee status. See Dynamex, 4 Cal.5th at 942. See Dynamex, supra, 4 Cal.5th at pp. 942, 967 [applying ABC test to Labor Code section 226 (itemized wage statements), and sections 510 and 1194 (overtime provisions). Accordingly, the ABC Test does not apply to employers in other contexts – such as workers’ compensation, harassment, and discrimination. Moreover, Dynamex was further modified by A.B. 5, which carved out specific exceptions, including, “an individual who holds an active license from the State of California …” Sec. 2 (incorporated as Cal. Lab. Code § 2750.3(b)(3).

The Goal and Effect

The purpose of A.B. 5/Dynamex is to prevent employers from misclassifying workers who, under the Borello Test, should be considered employees. Misclassification results in billions of dollars of avoided taxes by employers, job insecurity for millions of workers who forego benefits such as sick days, workers’ compensation, and other employee protections, and imbalances the economy as some employers are able to undercut competition who do not skirt the law.[5]

 For example, true independent businesses which are run as independent businesses (i.e., a separate business bank account, pay separate taxes, withhold payroll taxes, pay quarterly income taxes, hold a business license, etc.) will continue to operate as independent contractors. However, workers such as estheticians (whose schedule is controlled by the nail salon), newspaper delivery services (whose delivery route is controlled by the newspaper), and maid services (whose schedule is controlled by a single company – like a hotel) should be treated as employees. Assemblywoman Gonzalez explained on Voice of San Diego, A.B. 5 isn’t about reshaping California’s economy – but about correcting a pattern of abuse by employers.[6]  

The California Effect

Furthermore, “as California goes, so goes the nation,” – it is expected that many other states will adopt the ABC Test. For example, in 2004, California was the first state to mandate paid family leave.[7] By 2020, Rhode Island, New York, Washington, New Jersey, and Washington, D.C. will have paid family leave.[8] In 2016, California was the first state to pass a $15 minimum wage, and now seven states, and D.C., have a $15 minimum wage. Moreover, many more states are increasing their minimum wage. In short, the changes made in California, are expected to be replicated across the country in the next few years.

Dynamex and A.B. 5 are recent law, so there are many unanswered questions (for example, how are staff in co-working spaces treated – if they provide services to law firms are do take some directions – but their work is directed by multiple companies in the co-working space). However, any gaps in the law will likely get worked out in the courts over the next few years because, in response to Uber’s argument that its drivers are not employees under the ABC Test, A.B. 5 was amended to empower city attorneys to investigate and prosecute employers who violate A.B. 5. Sec. 2 (incorporated as Cal. Lab. Code § 2750.3(j). [9][10] Therefore, employers who systematically misclassify their workers should be on the lookout. The City Attorneys in Los Angeles, San Francisco, and San Diego, all expressed interest in going after employers who abuse their workers under A.B. 5.[11]

[1] John Myers, Johana Bhuiyan, Margot Roosevelt, “Newsom signs bill rewriting California employment law, limiting use of independent contractors,” Los Angeles Times, September 18, 2019.

[2] Andre Lopez-Villafana, “AB-5 aims to clarify employment classification,” SD City Beat, March 19, 2019.

[3] Peter Lawrence Loh and Kamran Mirrafi, “California Statute Offers Dramatic Change to Independent Contractor, Franchise-Franchisee Relationships,” National Law Review, September 20, 2019.

[4] Vazquez did apply Dynamex retroactively, but the Ninth Circuit withdrew its opinion pending resolution of a certified question to the California Supreme Court. see Vazquez v. Jan-Pro Franchising Int’l, Inc. (9th Cir. July 22, 2019, No. 17-16096) 2019 U.S. App. LEXIS 21687, at *1.

[5] Ratna Sinroja, Sarah Thomason, and Ken Jacobs, “Misclassification in California: A Snapshot of the Janitorial Services, Construction, and Trucking Industries,” Center for Labor Research and Education, University of California, Berkeley, March 11, 2019

[6] Scott Lewis, Sara Libby, Andrew Keats, and Assemblywoman Lorena Gonzalez, “Lorena Gonzalez’s Super Chill, Uneventful Few Weeks,” Voice of San Diego, September 20, 2019.

[7] Alexia Fernandez Campbell, “Gig workers’ win in California is a victory for workers everywhere,” Vox, September 11, 2019.

[8] Jackson Brainerd, “Paid Family Leave in the States,” National Conference of State Legislatures, Legis Brief, Vol. 25, No. 31, August 2017.

[9] Scott Lewis, Sara Libby, Andrew Keats, and Assemblywoman Lorena Gonzalez, “Lorena Gonzalez’s Super Chill, Uneventful Few Weeks,” Voice of San Diego, September 20, 2019.

[10] Joe Fitzgerald Rodriguez, “Last-minute AB5 amendment empowers city attorney to sue Uber for labor violations,” San Francisco Examiner, September 10, 2019.

[11] Chris Jennewin, “City Attorney Targets ‘Gig Economy’ Practices With Lawsuit Against Instacart,” Times of San Diego, September 13, 2019.

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