Groundbreaking California Legislation

Groundbreaking California Legislation

New CA Law Says Independent
Contractors Now To Be Employees

New Gig EconomyLabor leaders cheered and business interests vowed a strong pushback as the California Legislature passed groundbreaking legislation that will change whether a worker is classified as an independent contractor or an employee.

Assembly Bill 5 was adopted on Sept. 10, 2019.  CA Gov. Gavin Newsom has said he would sign the bill.

The resulting national discussion has consequently begin on the numerous and broad ramifications this sea change in labor laws will alter in the emerging “gig economy” that has been developing on service and knowledge, destined to rival changes in labor laws created in the 1930s industrial era.  Will the California law begin a trend across the U.S.?  A labor coalition in New York has already proposed legislation modeled after AB 5 and getting NY Gov. Andrew Cuomo’s initial support.  “We don’t like to lag California in anything.”

AB 5 formalized a 2018 California Supreme Court ruling known as the Dynamex Case (Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal. 5th 903.  The ruling, and now the legislation, creates a presumption that a worker who performs services for whoever hired him or her is an employee for purposes of claims for wages and benefits that are regulated by the Industrial Welfare Commission.

Being classified as an employee means he or she will receive employee protections and benefits such as minimum wage and overtime, unemployment insurance, family leave and collective bargaining rights.

The only way for a worker can be exempted from that presumption requires a three-part test, known as the “ABC” test in order to be classified as an independent contractor.  The test requires the worker to:

1)  be free from the control and direction of the hiring entity in connection with the work being done;

2) perform work that is outside the scope of the hiring entity’s usual course of business; and

3) be customarily engaged in an independently established trade, occupation or business.

Many industries are affected, with workers alleging they have been mis-classified for years, including in California hundreds of thousands of construction workers, janitors, truckers, nail salon workers and others.  AB 5 gives some industries a phased time period before it takes effect and some, like insurance agents and brokers, are fully exempted.

The California law falls into an early place on the continuum of efforts around the world to greatly alter labor regulations.

“You see the same identical recurring issues around the world – they’re around congestion, driver pay, environmental impact,” said Meera Joshi, who headed the agency that regulates ride-haling and taxis in New York City.

“California is not happening in a vacuum,” said Bradley tusk, political consultant and venture capitalist with Tusk Ventures, an early Uber investor.  “The politics in state government right now are trending left,” a concern for companies as legislators and regulators push new regulations on the tech industry.

Although it’s too early to know what results really unfold, Uber and Lyft have said fares will go up and wait times will increase.

Although CA-based ride-sharing behemoths Uber and Lyft were high profile in their opposition at the legislature, the impetus for the bill came from a 14-year-old court case in Los Angeles in which delivery drivers sued, alleging they had been misclassifed.

Uber and Lyft along with food delivery service DoorDash have pledged to spend $90 million to overturn AB 5 at the polls in 2020.



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