One of the most contentious issues in this year’s Sacramento legislative session is the debate over several bills which would define who is designated an employee under California laws.
There are three pending bills (see links at the end of this post):
AB 5 (Gonzalez) would essentially require the “ABC” test that was used by the California Supreme Court in the landmark 2018 Dynamex case which arose in a wage order case. Numerous groups and industries have pledged to support AB 5 if they are exempted from its application (see letter at bottom of this post). AB 5 currently sits in the Committee on Appropriations after some recent author amendments.
AB 71 (Melendez) would essentially enshrine the “Borello” multifactorial test to determine employment status. Borello has been used in California for decades. Although Dynamex did not address employment status for workers’ comp purposes, there has been widespread belief that eventually courts might start suing the “ABC” test in workers’ comp rather than Borello. AB 71 would prohibit that. AB 71 was referred to the Committee on Labor and Employment, but no votes have been scheduled.
SB 238 (Grove) would replace Borello and the ABC test with another standard, the economic realities test used under Federal law. The factors would be a) nature and degree of control by principal; b) worker opportunity for profit and loss; c) amount of worker investment in facilities and equipment; d) permanency of relationship; e) required skills necessary for success; f) extent to which services are integral to the principal/s business. SB 238 was rejected on a 4-1 committee vote on April 24.
SB 238 and AB 71 are not likely to get traction in the legislature. What is unclear is whether AB 5 can secure passage given the strength of the opposition and the demands for exceptions.
Meanwhile, there are several interesting developments.
A recent case from the 9th Circuit of the U.S. Court of Appeals, Vasquez V. Jan-Pro, has held that the Dynamex “ABC test” standard is retroactive:
And in April 2019 the U.S. Department of Labor issued an opinion letter in a “gig economy” case . The request was for an “opinion on whether service providers working for a virtual marketplace company (VMC) are employees or independent contractors under the Fair Labor Standards Act (FLSA).” The name of the company was not listed by the DOL, but it apparently provides household cleaning services and other tasks, bringing to mind Taskrabbit or similar providers. After analyzing the business model of the relationship between the service provider and the platform provider, the DOL concluded that:
“Under the facts described in your letter, we conclude that your client’s service providers are independent contractors, not employees of your client. The facts in your letter demonstrate economic independence, rather than economic dependence, in the working relationship between your client and its service providers. The FLSA therefore recognizes your client’s status as independent contractors”.
In doing its analysis, the DOL used the FLSA test which is embedded in SB 238. Here is the DOL opinion letter:
Here is a link to the California Supreme Court Dynamex decision:
And here is a case where the WCAB declined to use the “ABC test” in a workers’ comp setting:
A letter from various industries demanding an exception to AB 5 can be found here:
With unions, public interest groups, Silicon Valley companies and many of California’s most powerful business interests squaring off, this legislative debate is about as big as they come. For some unions and old and new gig-economy companies, this is an existential struggle that may affect the viability of their business model.
Any solution to this debate over how to harmonize labor law with new paradigms is likely to fail to please many people. Here is one proposal from the Brookings Institution “Hamilton Project:
Meanwhile, some of the gig-economy companies may be facing a patchwork of laws, where they are deemed employers for some laws (such as state but not federal wage and hour laws) but not for other laws (workers’ comp). But many workers who might want to challenge agreements are being forced to arbitrate rather than seek redress in class actions.
It creates a strange patchwork, indeed.