Why it matters

California employers may be facing changes, with a proposal from Governor Gavin Newsom to provide six months of paid leave for employees to care for a new baby and dueling measures introduced in the legislature related to last year’s decision in Dynamex Operations West, Inc. v. Superior Court. As one of his first acts as governor, Newsom advocated for a six-month period of paid leave for each new child, with the time divided between two adults. Only a handful of states—including New York and New Jersey—provide paid family leave, and if the proposal were enacted, it would put California in the lead in terms of the amount of paid time workers in the state are entitled to take. In legislative news, the California Supreme Court’s decision in Dynamex, adopting a new legal standard for determining whether workers should be classified as employees or as independent contractors for purposes of the state’s wage orders, is the subject of two measures: Assembly Bill 5, which would codify the “ABC test” embraced by the court, and Assembly Bill 71, which would codify the prior test used in the state.

Detailed discussion

Shortly after being sworn in as the new governor of California, Newsom proposed extending the state’s existing six-week paid family leave (PFL) to six months. PFL, which became law 17 years ago, currently provides up to six weeks of partial wage replacement to employees who take time off to, among other things, care for a new child entering the family through birth, adoption or foster care placement.

Other states—including New Jersey, New York and Rhode Island—have followed suit with similar paid parental and caregiving leave, with laws in Massachusetts, Washington and Washington, D.C., set to take effect in coming years. The jurisdictions offer between four and 12 weeks to new parents.

While the California proposal will boost the amount of time employees can take off work to bond with a new child, questions remain about how the increase in leave would be funded. Currently, all of PFL is paid for by employees through a 1 percent payroll tax on wages of up to $115,000 and the program is operating at a surplus. The surplus could be tapped to pay for the additional time or the payroll tax could be increased.

Other funding options include property and sales taxes or even requiring employers to chip in for the increased PFL. Governor Newsom also suggested that his expanded PFL proposal may become a piece of a larger tax reform initiative in the state.

In other possible legislative changes, lawmakers are considering two bills introduced in the wake of last year’s landmark decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles. In that case, the California Supreme Court adopted a new legal standard for determining whether workers should be classified as employees or as independent contractors for purposes of California wage orders.

The court adopted the “ABC test” utilized by other jurisdictions, which ultimately makes it much more difficult for businesses to classify workers as independent contractors, as all three of the following factors must be met: “(A) that the worker is free from control and direction” of the employer as it relates to performance of the work; (B) that the work is performed “outside the usual course of the hiring entity’s business” and (C) that the worker engages “in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.”

In response, Assembly Member Lorena Gonzalez introduced Assembly Bill 5, which would codify the ABC test. The measure also notes that “misclassification of workers as independent contractors has been a significant factor in the erosion of the middle class and the rise in income inequality,” emphasizing the harm to misclassified workers cited by the court in Dynamex.

Alternatively, lawmakers could take the opposite approach and support Assembly Bill 71, introduced by Assembly Member Melissa Melendez. That bill would override the Dynamex decision by adding section 2750.7 to the California Labor Code, providing for a multifactor test to determine whether an individual is an employee or an independent contractor.

Section 2750.7 would bring back the standard used in California prior to Dynamex and set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, where the principal factor to be considered is “whether the person to whom services is rendered has the right to control the manner and means of accomplishing the result desired.”

The other nine factors include whether the one performing services is engaged in a distinct occupation or business; the kind of occupation, with reference to whether in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; the skill required in the particular occupation; whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; the length of time for which the services are to be performed; the method of payment, whether by the time or by the job; the right to discharge at will, without cause; whether or not the work is part of the regular business of the principal; and whether the parties believe they are creating the relationship of employer-employee.

To read Assembly Bill 5, click here.

To read Assembly Bill 71, click here.