California Legislature Watch:
Reversing the Trend of Independent Contractors and the Gig Economy
In a prior post, I discussed the widely followed and discussed California appellate court decision, Dynamex Operations W., Inc. v. Super. Ct. that established a simple three-part test on whether or not a worker can be classified as an independent contractor versus as an employee. Employees may then be entitled to a medley of legally mandated worker protections. The California legislature later codified that common law test. In doing so, the legislature formally defenestrated a much more complicated multi-part balancing test established by previous case law, S.G. Borello and Sons, Inc. v. Dept. of Industrial Relations (Borello).
Current law, enacted as AB5, or Calif. Lab. Code §2750.3, creates a presumption that workers are, indeed, employees, with very limited exceptions. In order to rebut this presumption, an employer must prove that all of the so-called “ABC test” apply:
(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
(B) The person performs work that is outside the usual course of the hiring entity’s business.
(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
As noted, there are specific exemptions. For instance, original exemptions were heavily weighted toward professional careers that are otherwise regulated by the State of California. Such exemptions comprise persons licensed by the Department of Insurance, physicians, psychologists, attorneys, architects, engineers, accountants, securities brokers and the like. Commercial fishermen are also exempt as defined in the statute.
This well-intentioned law sought to reverse the results of decades of misclassification that deprived workers of the following protections: wage and hour guarantees, safe workplace laws, unemployment and workers’ compensation insurance, and recourse for discrimination.
However, this year, the legislature revisited AB 5 to partly address some of its unintended consequences with AB 1850. AB 1850’s revisions of AB 5 surgically carves out additional exemptions from the presumption that a worker is an employee. For instance, these occupations, as defined by the statute, may now also be exempt subject to the statute’s definitions: musicians, insurance inspectors and competition judges, appraisers and certain master class teachers, and freelancers. As well, it recasts the exemption for referral agencies.
After decades of worker protections unraveling around the U.S., California has once again taken the lead on repairing them. It may not yet be a perfect law, but it is a step in the right direction. Note also that even with the exemptions to the ABC test, employers must, for the most part, still be able to meet the multi-part Borello balancing test on whether or not a worker is properly classified.