Seyfarth Synopsis: California’s hotly contested and closely followed AB 5 independent contractor bill, which would extend the ABC test beyond Wage Order claims, just passed the California Senate, and now heads back to the State Assembly for reconciliation before going to Governor Newsom’s desk for his expected signature.

Tell Me What You Think About Me: The Destiny of AB 5

The California Senate has just passed a landmark bill, Assembly Bill 5 (“AB 5”), affecting how many businesses will relate with their contractors. Under this bill, workers who have long thought they “depend on no one else” may now be treated as employees. AB 5 now heads back to the State Assembly for reconciliation before it returns to Governor Newsom’s desk for his expected signature.

AB 5 codifies the “ABC” test for employee status adopted by the California Supreme Court’s 2018 decision in Dynamex v. Superior Court. Dynamex, as we previously reported here, which held that a worker hired by a business who then sues the business on claims arising under California’s Wage Orders is the defendant’s employee unless the defendant proves (A) the worker is free from control and direction of the hirer in connection with performing the work, both under contract and in fact, (B) the worker performs work outside the usual course of the hiring entity’s business, and (C) the worker customarily engages in an independently established trade, occupation, or business of the same nature as the work performed for the hirer.

While many businesses and independent contractors thought it was bad enough to “get down with that,” AB 5 would expand Dynamex by applying the “ABC” test to all claims brought under the Labor Code, the Unemployment Insurance Code, and the Wage Orders. So, post-AB 5, the ABC test will apply to a host of additional causes of action, such as claims for failure to reimburse necessary business expenses (under Labor section 2802) or to provide accurate wage statements (under Labor Code section 226), that the ABC test did not apply to previously.

Also, AB 5 would broaden potential business liability by allowing the State Attorney General and certain city attorneys to pursue injunctions against businesses suspected of misclassifying workers.

‘Cause I Depend On Me: Exemptions From the ABC Test

Perhaps not surprisingly, given the intense lobbying efforts by businesses trying to preserve the status of workers traditionally considered independent, AB 5 contains numerous statutory exemptions from the ABC test, including:

  • A “business-to-business” exemption that applies to “business service providers” that contract to provide services to another business (provided that certain criteria are met).
  • A “service providers” exemption in certain fields, including graphic design, photography, tutoring, event planning, moving, home cleaning, pool and yard cleanup, animal services, web design, and dog grooming and walking.
  • An exemption for certain “professional services” such as jobs in marketing, human resources administration, travel agents, graphic designers, grant writers, fine artists, agents licensed to practice before the IRS, payment processing agents, photographers and photojournalists, freelance writers, editors or cartoonists, and professionals providing cosmetic services (e.g., licensed barbers and manicurists).
  • Certain other occupational exemptions, including (but not limited to) certain medical professionals, attorneys, architects, engineers, private investigators, registered securities brokers and dealers, commercial fishermen, real estate agents, construction subcontractors, and individuals providing roadside services pursuant to a contract between a motor club and a third party business.
  • And, assuming a pending companion bill to AB 5 is also passed into law, newspaper carriers will be exempted from the ABC test until 2021.

What’s Next?

AB 5, if signed into law, would become effective January 1, 2020, and surely would prompt a spike in litigation challenging independent contractor classifications. It is anticipated that the law will be subject to numerous legal challenges.

Workplace Solutions

The status of AB 5, its many legal challenges, and its impact on businesses and workers is evolving by the minute. So if you “truly feel” us, and want to know the latest on some of the most pressing wage and hour issues arising in the marketplace space, Seyfarth will be covering the topic in various ways for employers around the country. Choose the one that’s right for you! Or join our webinar, specifically developed to cover AB 5, which will take place soon. To get on the list for these upcoming events, click here.

We are also covering the topic as a part of a broader roundtable discussion on wage and hour issues. These roundtables are designed for in-house counsel and are taking place in San Francisco (10/23) and Boston (11/5). If you are in the Houston area, you can also find us chatting about AB 5 (10/10). For more information on these regional programs, click here.