California’s worker classification – truckers and gig economy mount challenges

As previously reported in the second quarterly edition of this publication, the California legislature recently codified the California Supreme Court decision in Dynamex to establish a three-prong “ABC test” for determining whether a worker is an employee or independent contractor.  Employers must establish each of the following prior to classifying workers as independent contractors:

1. The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
2. The worker performs work that is outside the usual course of the hiring entity’s business; and
3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

The decision and subsequent legislation were intended to target the gig economy, but its scope has broad implications for a vast array of employers in wide-ranging industries and sectors of the economy.  Some industries were crafty and able to lobby the author to include entity-level exemptions for certain professions, including physicians, accountants, and cosmetologists, but the exceptions are few vis-à-vis the broad swath of industries and professions covered by the new law.  (For more information regarding the law’s entity-level exceptions see the Cal Chamber’s Roadmap to AB 5.)

Outcries from the business community have been deafening and challenges to AB 5 have only begun.  Uber, Lyft, DoorDash, Postmates, and Instacart have committed $110 million to sponsor a ballot measure in 2020 that would create an entity-level exemption for the gig economy including transportation network companies and food delivery services.  On November 12, 2019, the California Truckers’ Association filed a lawsuit in federal court and alleged that the new law will prohibit truckers from working as independent drivers and profiting from their own vehicles while setting their own schedules (Source – Sacramento Bee, November 12, 2019).  On December 30, 2019, Uber and Postmates filed a federal action against the State of California, and alleged that AB 5 violates due process and equal protection rights guaranteed by the Constitution  (Source – Wall Street Journal, December 30, 2019).

Recognizing the unrest and uncertainties created by the new law, the California Labor and Workforce Development Agency recently created an employment status portal designed to help employers determine whether workers are employees or independent contractors.  The site includes information to assist employers regarding the ABC test codified in AB 5, the employment status of workers, and various employer legal requirements including workers compensation obligations and wage and hours laws.

The dust is anything but settled on AB 5’s impacts and effects on employers and workers.  While the fate of the new law plays out in state and federal courts, employers are faced with the immediate task of properly classifying workers in compliance with applicable laws and regulations.  Assemblywoman Lorena Gonzales, the author of AB 5, has urged city attorneys in the state to seek court orders beginning on January 1 that require employers to comply with the new law.  Gonzales is also sending a signal that further attempts to weaken and carve out exceptions to AB 5 in 2020 will meet formidable opposition.  Moreover, the new law codifies and expands the California Supreme Court decision in Dynamex which suggests the prospects for judicial relief are dismal.

California, often a pioneer for legislation that eventually spreads across the country, set the tone for other states to follow its lead in 2020 and beyond.  New York and New Jersey are expected to take similar steps toward classifying more workers as employees rather than independent contractors in each state’s respective 2020 legislative sessions.