At the end of 2020, it seemed the legislature, the courts, and even California voters wanted to move away from the independent contractor test codified in Assembly Bill 5 (AB 5). However, during 2021, the pendulum seems to have swung back in favor of AB 5 and its guidelines on classifying workers as employees versus independent contractors.
In 2019, the Legislature passed AB 5 to add Section 2750.3 to the Labor Code, adopting and expanding the common law “ABC Test” to define “employee” not just for purposes of the Wage Orders, but also for purposes of the Labor Code and the Unemployment Insurance Code.
Under the AB 5-enhanced version of the ABC Test, a worker is presumed to be an employee, unless the hiring entity can establish that:
(A) The person 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;
(B) The person performs work that is outside the usual course of the hiring entity’s business; and
(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
A worker cannot be classified as an independent contractor under the ABC Test unless all three factors are met, or unless one of the exemptions established by AB 5 is satisfied.
At the start of 2020, a U.S. District Court granted a preliminary injunction against the enforcement of AB 5 for truckers. Later that year, California’s Governor signed Assembly Bill 2257 (AB 2257), which recast, clarified, and expanded the exemptions to AB 5. Even California voters were in favor of an exemption for app-based rideshare and delivery companies and passed Proposition 22 in November 2020. It seemed that AB 5 was going out of vogue.
However, 2021 took a different turn. As the year started, the California Supreme Court issued its opinion in Vazquez v. Jan-Pro Franchising International, which held that Dynamex Operations West, Inc. v. Superior Court applied retroactively. Dynamex was the case that originally set forth the ABC Test. While this mainly affected litigation that had been filed before Dynamex, it set the tone for independent contractor issues for the rest of the year.
In April, the Federal 9th Circuit Court of Appeal reversed the district court’s preliminary injunction against AB 5 as to motor carriers. Currently, the California Trucking Association has a petition for writ of certiorari pending before the U.S. Supreme Court.
Similarly, Proposition 22, has been under attack in the courts, and recently a state court prohibited Proposition 22 from being applied. This decision also is under appeal before the California Court of Appeal.
In 2021, the California legislature also extended exemptions for some industries, who do not have to follow the ABC Test. These exemptions include licensed manicurists and construction trucking subcontractors (AB 1561) and newspaper distributors and carriers (AB 1506).