The impact of California’s new legislation aimed at changing how workers are classified will be met with resistance from some of the state’s top tech companies, and ultimately a ballot initiative that could be the talk of the 2020 election.
Gov. Gavin Newsom signed Assembly Bill 5 into law on September 18, which has changed the legal test for determining whether gig economy workers are employees. The bill codified the “ABC Test” from the California Supreme Court decision in Dynamex v. Superior Court, which says that a worker is probably an employee if they provide work that is in the usual course of the hiring entity’s business.
Why is that important? That would mean that these new employees would arguably be subject to workers’ compensation coverage.
In other words, if a worker does not meet all of the following three conditions, then they are an employee for purposes of workers’ compensation law:
- The worker is free from the control and direction of the hiring entity in connection with the performance of the work;
- The worker performs work that is outside the usual course of the hiring entity’s business;
- The worker is customarily engaged in an independently established trade, occupation, or business.
So does that mean that when the bill takes effect on Jan. 1, 2020, that all gig economy workers will – as the San Francisco Chronicle put it – magically transform “into employees, like Cinderella’s coachmen transforming back into mice?”
And I’d have to agree with the Chronicle’s answer, which was, “Nope. As much as some might want a gig economy magic wand, it’s a lot more complex than that.”
Well, what the heck does that mean? It means that Uber and Lyft have told media outlets that their drivers are independent contractors because they fall outside those tech firms’ usual course of business. In other words, tech firms reportedly plan to argue that they are tech companies that produce applications, and are not in the driving business.
Uber, Lyft, and DoorDash have also vowed to put a total of $90 million into a California ballot initiative that would thwart Assembly Bill 5. As this Vox piece notes, the proposed ballot measure would give some concessions, such as putting in a guaranteed wage floor for workers in exchange for not classifying drivers as employees.
As risk management guru and Sedgwick Institute Senior Fellow Bill Zachry pointed out in his blog post analyzing the bill, one of the next steps should be for the Department of Industrial Relations to start crafting regulations to supplement the new law. This is a tall order for the state because supplementary regulations are not easy to draft and must be incredibly detailed. Generally speaking, vague regulations are relatively useless.
With a ballot initiative on the horizon, one has to wonder – will the DIR shelve the regulations until we have a better idea of whether the law may change again in 2020, whether by ballot initiative or future legislation? (Remember, the Legislature has gone back and “edited” past legislation by passing even more bills in subsequent sessions.)
At this time, the only answer we have to that question is to grab our popcorn and wait and see.
THE BILL’S MANY EXEMPTIONS
On its face, it’s easy to make the mistake of only thinking about this bill within the context of workers who will bring you stuff if you click an app on your phone. But don’t forget, there are also many, many others who are independent contractors, such as your hairdresser/stylist/barber, nail salon worker, truck drivers and more.
To address this, lawmakers added a ton of exceptions to Assembly Bill 5. What happens to the exempted people? What happens when the ABC Test doesn’t apply?
The Borello test applies. Yes, the multi-factorial “right of control” test that us work comp practitioners have been following since 1989 from S.G. Borello & Sons, Inc. v. Dept. of Ind. Relations 19 (1989) 48 Cal.3d 341 [54 Cal.Comp.Cases 80], is the one that still applies, unless there are more specific exemptions listed in AB 5.
So who was exempted? Hats off to Bill Zachry, who managed to summarize the thousands of words of AB 5’s exemptions in the most concise way possible:
“Partially as a result of the resistance to the bill, its author, Lorena Gonzalez, agreed to exempt specific occupations from the court’s ABC test, leaving them subject to a lower standard for determining if the employee was an independent contractor. The exempted workers include doctors, dentists, lawyers, engineers, accountants, architects, realtors, travel agents, graphic designers, human resources administrators, grant writers, marketers, fine artists, investment advisors and broker-dealers. Several exemptions come with conditions. Commercial fishermen, for example, are exempt except from unemployment insurance. Barbers, cosmetologists and manicurists are exempt only if they set their own rates, are paid directly by clients and schedule their own appointments. Salespersons are exempt, provided their pay is based on actual sales, rather than wholesale purchases or referrals. Freelance writers and photojournalists are exempt only if they submit 35 or fewer articles or photographs in a year.”
MOST TRUCKERS ARE SUBJECT TO AB 5
With the exemptions to mind, I searched the bill for references to truck drivers. After all, aren’t many truck drivers routinely classified as independent contractors?
As it turns out, the bill only contains language impacting “construction trucking services” which allows construction industry truck drivers to act as independent contractors for a two-year grace period.
In other words, most truckers are not exempted. That is why the California Trucking Association vehemently opposed the bill, as it defended the interests of more than 136,950 trucking companies exist in California, and warned that the bill will hurt the 70,000 truckers working as independent contractors in the Golden State.
Truckers are not happy about it either, which prompted headlines like this one stating “We’ll have to sell our trucks.”
If it seems like there’s a lot going on here – there is. This was a 6,834-word bill that will need to be supplemented by potentially thousands of more words of regulations.
And then there’s the prospect of more changes on the horizon, whether it be by ballot initiative, additional legislation, or new case law.
When there’s this much detail and confusion, that usually means one thing – there is going to be more litigation and chaos ahead.
If you need help navigating the confusing landscape of independent contractors and employment relationships, please feel free to contact John P. Kamin and his colleagues at Bradford & Barthel. Mr. Kamin is a workers’ compensation defense attorney and partner at Bradford & Barthel’s Tarzana location, where he heads the firm’s Sports Law Division and watches the recent legislative efforts as the firm’s Editorial Director. Mr. Kamin previously worked as a journalist, where he reported on work-related injuries in all 50 states. You can reach John at firstname.lastname@example.org or at (818) 654-0411.
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