Sept. 13, 2019 Gig No More? California Senate Passes AB 5, Sharply Curtailing the Use of Gig Workers

On September 10, 2019, California Assembly Bill 5, the gig worker bill opposed by the likes of Uber, Lyft and DoorDash, was passed in the California State Senate along party lines. AB 5, previously approved by the Assembly, would require that most gig economy and platform workers be treated as employees, and entitle them to minimum wage, overtime, meal and rest breaks, workers’ compensation, unemployment insurance, paid family leave, and other benefits.  It also opens the door for the potential unionization of certain previously scattered workforces, and has other significant implications to a host of industries and practices.  Earlier this month California Governor Gavin Newsom officially put his support behind AB 5 in an op-ed.

Background

Before 2018, those working as “independent contractors” could set their own schedules, and decide when, where and how much they wanted to work. For employers, engaging these contractors meant they could quickly expand and contract, and avoid paying payroll taxes, overtime pay, benefits and workers’ compensation benefits. AB 5 substantially restricts this practice. The bill begins by adopting as law the ruling established in the 2018 Dynamex case, upon which we have previously reported.  In that case, the California Supreme Court held that a worker performing a service for the hiring person or company is presumed to be an employee of that person or company unless the company can show the worker meets all three parts of the “ABC” test:

  1. The worker is free from control and direction of the hirer in connection with the performance of the work, both under the contract and in fact; and
  2. The worker performs tasks that are outside the usual course of the hiring party’s business; and
  3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring business. This normally means the worker will have established and promoted his or her own business; is licensed; does advertising; has other clients or potential customers; and the like.

Discussion

The 6,800 word AB 5 significantly expands the Dynamex ruling in scope and consequences.  Dynamex was limited to only certain parts of the Labor Code.  AB 5 expands the “ABC” test to virtually all California workers, outside of certain specifically enumerated industries and occupations.  Vocal critics of the bill included Uber and Lyft, the California Newspaper Publishers Association, and others.  The rideshare companies vowed to place the issue on the November 2020 ballot; that might be too little, too late, since the law, if signed, is to become effective in January, 2020.

Importantly, with a few exceptions, AB 5 is drafted to be retroactive to existing relationships. 

The news is not all bad, though.  In addition to various complete exemptions, AB 5 contains some comfort for certain employers and industries by allowing their contracting practices to be governed by the more forgiving Borello multi-factor “economic realities” test.  This will include licensed insurance agents, certain licensed health care professionals, registered securities broker-dealers or investment advisers, direct sales salespersons, real estate licensees, commercial fishermen, and workers providing licensed barber or cosmetology services, among other industries.  The bill also provides for more lenient rules for those performing work under a contract for professional services, businesses to business relationships, and certain construction subcontracts.   (Without the exemption, in many cases these contractors might not qualify under the “ABC” test because the services were integral to the hirer’s business, or the provider might not be part of a true, independent business.)  Independent contractors for such functions as marketing, HR advising, travel, graphic design, tax preparation, photography, payment processing, and grant writing may also survive, under certain conditions, under the new bill.

What This Means For Employers

Since the Governor is likely to sign the bill, employers should acquaint themselves with its details, reach, exemptions and, importantly, its new civil and criminal penalties.  We will present in-depth analysis of the bill, its exemptions, and strategic employer options at the firm’s upcoming seminar on Friday, November 1st at the Hilton San Diego Resort & Spa on Mission Bay. 

This E-Update was authored by Rich Paul and Camille Gustafson. For more information, please contact them, or any other Paul, Plevin attorney, by calling (619) 237-5200.