With its decision last year in Dynamex, the California Supreme Court fundamentally changed the test for determining whether workers are properly classified as either employees or independent contractors. Specifically, and as for claims brought under the California wage orders, the Supreme Court adopted the “ABC test,” which involves an analysis of the following three factors: (1) whether the worker is free from the control and direction of the hiring entity in connection with the performance of work, (2) whether the worker performs work that is outside the usual course of the hiring entity’s business, and (3) whether the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. Since that time, California employers and various industry groups have been lobbying the California legislature left and right to take steps to either limit the ruling’s application or expand it.
On May 29, 2019, the California legislature seemed to declare a winner in those lobbying efforts with the California Assembly passing AB 5, which would codify the Dynamex decision. Unlike the Supreme Court’s ruling in Dynamex, however, AB 5 would declare that the ABC test applies to all provisions of the California Labor Code and Unemployment Insurance Code, unless otherwise stated. This would represent a significant extension of the Dynamex decision.
Like Dynamex, AB 5 would make it more difficult for employers to classify workers as independent contractors. The law, however, does exclude from its scope certain professions including licensed insurance agents, certain licensed health care professionals, registered securities broker-dealers or investment advisers, a direct sales salesperson, real estate licensees, workers providing hairstyling or barbering services, and those performing work under a contract for professional services. Employers in these professions would be able to classify their workers under the former test established by the California Supreme Court in S. G. Borello & Sons, Inc. v. Department of Industrial Relations.
Given its wide-ranging implications, AB 5 has the potential to once again change the game in terms of worker classification within the State of California. Stoel Rives will continue to track this law and its implications as it continues through the legislative process.