by Michelle R. Ferber and Julie Ann Giammona

Yesterday, the California Legislature passed AB 5, the controversial bill that codifies the notorious 2018 California Supreme Court Dynamex decision. Governor Newsom has already expressed his support for the Bill and is expected to sign AB 5 before the deadline of October 13.

Dynamex overturned 30 years of established law by holding that every worker will be presumed an employee, unless the hiring entity can show that the worker: (1) is free from daily control; (2) engages in work that is outside the ordinary course of the hiring entity; and (3) is actually operating his or her own business of the same nature as the work being performed for the hiring entity. Significantly, AB 5 expands the scope of the Dynamex decision (which had limited the ABC test to claims arising under the Wage Orders only), to now include claims arising under the Labor Code and Unemployment Insurance Code as well. The question of retroactive application of Dynamex is currently before the California Supreme Court as a result of the July 22, 2019 decision by the three-judge panel for the Ninth Circuit which withdrew its prior stance endorsing retroactive application and instead certified the question before the Supreme Court. However, AB 5 appears to contain language providing that certain provisions will apply retroactively.

AB 5 provides for numerous exemptions for certain workers, including, doctors, dentists, lawyers, engineers, accountants, architects, realtors, travel agents, graphic designers, human resource administrators, construction contractors, investment advisers, broker-dealers, barbers, cosmetologists, manicurists, and salespersons, to name a few. Notably, both the trucking and gig industries were unsuccessful in their lobbying attempts to obtain a place on this exclusion list. Both industries have already indicated they will not give in to AB 5 without a continued fight. Uber, Lyft and DoorDash are committed to ensuring a ballot initiative that would create a separate category for their workers.  Moreover, Uber announced that it will not automatically reclassify its workers as employees come January 1, 2020, as the new statute will require. Practically speaking, enforcing the law against a multibillion-dollar gig industry estimated to have a California workforce of close to 400,000 persons could be challenging at best.

The California Trucking Association (CTA) and the Western States Trucking Association (WSTA) has engaged in active opposition to the ABC test since the issuance of the Dynamex decision and is expected to continue its battle to stand up for approximately 70,000 owner-operators who apparently do not want to be classified as employees. CTA and WSTA have multiple lawsuits pending which challenge the application of Dynamex to the trucking industry on the basis of federal preemption. The lawsuits all present the same argument: the ABC test is inconsistent with the Federal Aviation Administration Authorization Act (FAAAA) which provides that states “may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier.” In sum, if the courts agree with the trucking industry argument that AB 5 affects a price, route, or service of any motor carrier, the trucking industry may carve out its own exclusion to the statute based on federal preemption. 

In the wake of the passage of AB 5 and the expected signature by the Governor, California employers are left with limited options. Each employer must weigh the risk of continuing to utilize independent contractors against the cost of hiring such workers as employees. Employers may also wish to consider utilizing staffing companies as the employer of record, though this option presents its own hazards of potential classification as a joint employer. Ferber Law has the expertise to advise you on each of these issues as California employers tread water waiting for the implementation of AB 5.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.