Assembly vote on test to determine an employee could impact gig economy

The Assembly's 55-11 vote to pass AB 5 could install a multi-part test that distinguishes between employees and independent contractors, which could lead to substantial changes for many employers, particularly those who hire workers within the so-called gig economy, legal experts said Thursday.

The bill still requires a vote in the state Senate before it reaches Gov. Gavin Newsom's desk for review and a possible signature. That did not, however, stop the bill's author, Assemblywoman Lorena Gonzalez, D-San Diego, from proclaiming victory after the vote Wednesday.

"Big businesses shouldn't be able to pass their costs onto taxpayers while depriving workers of the labor law protections they are rightfully entitled to," Gonzalez said in a statement.

The bill codifies the precedent set in the landmark April 2018 Dynamex case in which the state Supreme Court ruled plaintiffs had been misclassified as independent contractors and applied a three-factor test to determine a worker's status.

According to Dynamex, workers are considered employees only if they are free from the hirer's control and direction, work outside the usual course of the hirer's business, and engage in the same kind of work as the hirer independently. Dynamex Operations West, Inc. v. Superior Court, 2018 DJDAR 3856.

In passing AB 5, the Assembly confirmed the need for a more strictly defined measure for determining employment, said Michael Rubin of San Francisco-based Altshuler Berzon LLP, who argued for the drivers in the initial Dynamex case. In the past, the state depended on much broader rules set forth in 1989's S.G. Borello & Sons, Inc. v. Department of Industrial Relations, which considered ten factors for employment.

"It's a clear, easily administered test that eliminates the uncertainties inherent in previous tests," Rubin said. "So in the long run, it will reduce the need for expensive litigation over misclassification and will likely result in a far greater number of working people in this state receiving the workplace protections the Legislature always intended for them to have."

But if the bill becomes law, the test could create a number of challenges for employers, said Megan E. Walker, a labor and employment associate with Fisher Phillips LLC in San Diego who represents employers. Chief among them will be the recent 9th U.S. Circuit Court of Appeals ruling that Dynamex applies retroactively.

"For 30 years, we were working with one test," said Walker. "You think you've been complying with the law that's based on this California Supreme Court precedent, and then they come out with a new interpretation. That's very challenging because how do you anticipate that?"

One allowance for employers is AB 5 does exempt a number of workers from being classified as employees, Walker said. According to the bill, those exempt include licensed workers such as insurance agents, health care professionals, securities broker-dealers or investment advisers.

Workers providing hairstyling or barbering services, and those performing work under a contract for professional services, are also exempt, according to the bill.

"Those are [jobs] where it was such a commonplace within the industry that it was disruptive for Dynamex to come down," Walker said. "But I don't think that captures everybody."

More likely, those most affected will be "gig economy" companies like ride-hailing and food-delivery services Uber Technologies Inc., Lyft Inc. and Postmates, said Brian Kabateck, president of the Los Angeles County Bar Association and former president of the Consumer Attorneys of California.

"There's a distinction between somebody who turns on their Uber app for 10 hours a month and somebody who's working 70, 80 hours" a week," Kabateck said.