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California Governor Signs AB5: When in Doubt, Worker Is Employee

For most of a century, California law has favored the employment relationship and creates a likely presumption that a person whom you allow to perform work is an employee. The California Legislature just added one more brick to the employment wall, sending Assembly Bill (AB) 5 to Governor Gavin Newsom, who has signed it into law.

Writing Dynamex into Law

Broadly speaking, AB 5 codifies last year’s California Supreme Court decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles while trying to plug the many holes left by that decision. Meanwhile, the bill creates some inconsistencies of its own, and it will take at least another three years to sift through all of them. AB 5 was subjected to heavy lobbying, as is clear from the many exceptions built into it—some logical, some plainly political.

Hiring entities in many industries have long tried to redefine themselves out of the employment relationship. Hair salons rented chairs and massage parlors rented tables to entrepreneurial stylists and masseuses as independent contractors—an arrangement routinely stricken by courts and administrative agencies. I have seen short-order cooks described as “franchisees” and clerical workers dubbed “partners” in an effort to avoid the 25 percent benefits load associated with most employment. Labor commissioners seldom bought into those arrangements, and Dynamex and AB 5 will generally do nothing but reinforce that.

An unintended consequence of Dynamex was to kill several classic independent contractor arrangements—such as freelance journalists and contract lawyers—and AB 5 reinstates those arrangements. Many logical exemptions were put in the law, excluding most doctors, accountants, architects, real estate agents, travel agents, graphic designers, investment advisers, and several others from its coverage. On the other hand, the bill’s one-year exemption for newspaper delivery drivers is more a testament to a struggling newspaper industry than good employment policy. You’ll be interested to know that, for better or worse, most HR administrators are exempt from AB 5 as well.

You’d think that working as a driver for Uber would be squarely within the usual course of the company’s business—a death knell under the Dynamex/AB 5 definition. The big gig economy players see it differently, however. Uber’s general counsel, Tony West, argues that “drivers’ work is outside the usual course of Uber’s business, which is serving as a technology platform for several different types of digital marketplaces.” Therefore, he noted, “drivers will not be automatically reclassified as employees, even after January [2020],” when AB 5 is set to go into effect.

The politics are continuing, and more changes will come from the governor, from the next legislative session, or through a ballot initiative this fall to which Uber, Lyft, and DoorDash have already pledged $90,000,000.

As the governor said in his signing message, “I will convene leaders from the legislature, the labor movement, and the business community to support innovation and a more inclusive economy,” while the California Chamber of Commerce promised that “the business community will be aggressively pursuing  further exemptions next year.” AB 5’s author, Assemblywoman Lorena Gonzalez (D-San Diego), has admitted that the bill “isn’t perfect, but I think [it] goes a long way to protecting workers, legitimate small businesses, legitimate businesses that play by the rules, and we, as taxpayers, [who] have to clean up the mess when these businesses don’t provide enough for their workers.”

But the basic premise is clear: When in doubt, a worker is an employee.

Should Everything Really Be Employment?

California clings to the employment relationship as though it were still 1919. To the contrary, there are many other ways to describe a service arrangement, many scenarios other than full-time employment, and many types of advantages other than an hourly wage or a salary. But Sacramento wants to control all of those relationships, and they almost all look like employment to the powers that be at the capitol.

The unpaid internship has all but disappeared in California, so a student who would love to work for free for the chance to get coffee for Jimmy Kimmel, Taylor Swift, or Duane “The Rock” Johnson no longer gets that chance. The legislature might have just killed high-caliber amateur athletics in California with the passage of Senate Bill (SB) 206, the Fair Pay to Play Act, which prohibits California schools from enforcing NCAA rules against student-athletes who take money for endorsements or from using their names or likenesses. The NCAA has threatened to drop California schools from competition if SB 206 is signed and upheld by the courts.

California has been developing a common-law test for employment status for the past 30 years, since the California Supreme Court first determined in S.G. Borello & Sons, Inc. v. Department of Industrial Relations whether sharecropper farmers were employees or independent contractors. That common-law test is not yet dead, but it’s on life support as the legislature rewrites the rules wholesale. As Assemblywoman Gonzalez admitted, the new rule “isn’t perfect”; worse, it isn’t clear, and clarity is the one thing we need from an employment rule.

To learn more about navigating around AB 5, join us in California on Tuesday, October 1 at this year’s HR Comply California for the session Independent Contractor or Employee? The Practical Impact of Dynamex and Key Considerations if AB 71 or AB 5 Become Law given by expert Marc Jacuzzi, Esq., Simpson, Garrity, Innes, & Jacuzzi, P.C. Learn more.

Mark SchickmanMark I. Schickman is of counsel with Freeland Cooper & Foreman LLP in San Francisco and Editor of California Employment Law Letter. You can reach him at 415-541-0200 or [email protected]

The post California Governor Signs AB5: When in Doubt, Worker Is Employee appeared first on HR Daily Advisor.



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