California’s A.B. 5 Poised to Change Independent Contractor Law Permanently
On September 11, 2019, the California Legislature passed Assembly Bill 5, a landmark employment bill that largely codifies the state Supreme Court’s decision in Dynamex Operations West v. Superior Court, which we blogged about here.
Although the law has been criticized for numerous industry-specific exemptions, described below, Gov. Gavin Newsom is expected to sign it into law, though he has pledged to continue negotiations with “gig” economy companies like Uber, Lyft, and DoorDash, whose business models would be dramatically affected by this bill.
What A.B. 5 Will Do
The law forces California employers to reclassify workers from independent contractors to employees unless the workers meet the so-called “ABC” test. To satisfy that test, employers must prove that:
- (A) the worker is free from the employer’s control and direction in connection with the performance of the work, both under the contract for the performance of the work and in fact;
- (B) the worker performs work that is outside the usual course of the employer’s business; and
- (C) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
This law has gained tremendous publicity due to the dramatic effect that it is expected to have on the “gig” economy employers mentioned above, who routinely classify workers as independent contractors. Uber and Lyft maintain that A.B. 5 will upend their business models, and they furiously lobbied the Legislature to amend the law.
Following passage of A.B. 5, Uber stated its intention not to make any changes to the way that it classifies drivers in California because its main business is as a technology platform, not a driving service. It is also widely expected that “gig” companies will sponsor a ballot measure for the November 2020 election to reverse the effects of A.B. 5.
Exemptions Galore
Bills like A.B. 5, which have the potential to upend employment laws, also typically have many exemptions, the result of intense lobbying by labor unions, trade associations and the Chamber of Commerce. Because of that, A.B. 5 has been criticized as giving gifts to industries that had the financial ability to stage the largest lobbying campaigns.
The more prominent industry-specific carve-outs are for certain workers meeting very specific qualifications in the following fields:
- Medicine, dentistry, podiatry, psychology, and veterinary sciences
- Law, architecture, engineering, accounting, and private investigating
- Securities brokerage and investment advisors
- Freelance writing and photography
- Real estate sales
- Commercial fishing
- Graphic design and fine arts
- Marketing, HR administration, payment processing, and grant writing
- Direct sales
- Travel agencies
- Barbers, electrologists, estheticians, cosmetologists, and manicurists
- Construction trucking subcontractors
- Repossession agency workers
- Newspaper delivery workers
For each of these exemptions, California companies must be very wary: the exemptions are narrowly drawn and companies must still meet very specific qualifications for each to determine if they apply.
What To Do
For now, our advice is simple: Sit tight and wait to see what happens at the Governor’s desk. But, if he signs it as expected, it is worth doing a comprehensive review of all workers that you currently have classified as contractors to see if that classification still fits.
Dan Handman is a partner and Derek Ishikawa is an associate in Hirschfeld Kraemer LLP’s Santa Monica office. They can be reached at dhandman@hkemploymentlaw.com and dishikawa@hkemploymentlaw.com, respectively.