Do You Have Independent Contractors in California?

If so, you should be on alert about California Assembly Bill 5 (AB5), a bill based on the California Supreme Court’s decision in Dynamex v. Superior Court.* If it becomes law, AB5 will have wide-ranging repercussions for companies that rely on independent contractors in California.

By way of background, in Dynamex, the California Supreme Court introduced a new “ABC test” to determine whether a worker is properly classified as an independent contractor. In summary, Dynamex’s ABC test presumptively considers all workers to be employees, and a hiring business bears the burden of proving each of the following three conditions for the worker to be properly classified as an independent contractor:

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

AB5 would effectively codify the Dynamex decision and require companies in various industries – including those in the gig sector – to reclassify independent contractors as employees. As AB5 currently stands, several industries/occupations, such as insurance agents, physicians, dentists, doctors, architects, securities broker-dealers and others, are exempted. However, unless a particular industry or occupation falls within an exemption listed in the current version of AB5, reclassification is around the corner if AB5 becomes law.

And AB5 took a significant step and a crucial step closer to becoming law despite strong opposition by various industry groups, including those in the gig sector. Late last month, AB5 passed the Senate Appropriations Committee by a vote of 5−2. This means that AB5 is now sitting with the California Senate for a final vote. If AB5 passes the final votes in the Senate and Assembly, it will move on the Governor’s desk.

It’s perhaps anyone’s guess (actually, maybe not) how lawmakers will ultimately vote on AB5, but we now know that if lawmakers pass AB5, Governor Newsom will sign it. On Labor Day, Governor Newsom wrote an op-ed piece published by the Sacramento Bee in support of AB5 and calling on lawmakers to pass AB5. Governor Newsom wrote: “Reversing the trend of misclassification is a necessary and important step to improve the lives of working people. That’s why, this Labor Day, I am proud to be supporting Assembly Bill 5, which extends critical labor protections to more workers by curbing misclassification.”

We should know more very soon about the fate of AB5, but now that Governor Newsom has publicly voiced his support, AB5 is not just around the corner anymore. It has practically arrived at its destination − within the Governor’s reach with pen in hand.

* 4 Cal.5th 903 (2018)