California Assembly Bill 5 Staged to Change Independent Contractor Laws Permanently

California Assembly Bill 5 Staged to Change Independent Contractor Laws Permanently

Written by Hedley Lawson, Global Managing Partner, Aligned Growth Partners, LLC

On Sept. 11, 2019, the California Legislature passed Assembly Bill 5 (A. B. 5), a landmark employment bill that largely codifies the state Supreme Court's decision in Dynamex Operations West v. Superior Court.

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 garnered considerable publicity due to the significant 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.

Considerable Exemptions

Bills like A. B. 5 typically have many exemptions, the result of intense lobbying by labor unions, trade associations and business groups and associations. 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 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.

While California A. B. 5 is specific to California employers, businesses can expect other states across the country to quickly follow this legislation and craft similar legislation with parallel exemptions or similar coverage in the coming months.