As contract work reclassification bill is signed, legal challengers are prepared

Assemblywoman Lorena Gonzalez keeps a framed picture in her office displaying the words, "A tiger doesn't lose sleep over the opinion of sheep."

Nor does the San Diego Democrat appear to have lost sleep over Uber Technologies Inc. chief legal officer Tony West's opinion that her bill, AB 5, signed Wednesday by Gov. Gavin Newsom, doesn't apply to his company in its classification of many heretofore contract workers as employees.

"Tony West is full of shit," Gonzalez replied to a reporter's question about the challenger to her bill at her victory press conference Wednesday morning in her office.

But attorneys say litigation is coming, definitely in the form of more companies arguing they should be exempt, and possibly in the form of a direct attack on the law.

AB5 codifies the California Supreme Court's decision in Dynamex Operations West Inc. v. Superior Court, 2018 DJDAR 3856. The ruling eliminated the three-decade old, 11-part Borello test, replacing it with an "ABC" test more likely to result in a worker being considered an employee.

Besides West's pledge to defy the law, the International Franchise Association issued a press release Wednesday saying it is examining "other challenges to the law,"

"I would fully expect both" kinds of lawsuits," said Derek K. Ishikawa, an employer-side associate with Hirschfeld Kraemer LLP in Santa Monica. "I think you might have some direct attacks on AB 5, but it's more going to be of the sort that Tony West is arguing."

Ishikawa added that many employers, especially those who operate interstate business, are looking at whether there could be federal preemption issues that could exempt their industry from AB 5.

"Because there are so many industries exempted and so many businesses that are exempted, I think there has been some talk of some sort of constitutional challenge under the equal protection clause," said James C. Fessenden, who represents employers as a partner with Fisher Phillips LLP in San Diego.

"I don't think they can sue to block the law," said Mike Arias, president of the Consumer Attorneys of California.

Arias often represents workers as managing partner of Arias Sanguinetti Wang & Torrijos LLP in Los Angeles and said he doesn't believe there are constitutional or other actionable issues with the law itself. Indeed, attorneys have fought for decades in cases over whether particular workers should be considered employees under the state legal code -- the exact same questions that prompted Dynamex in the first place.

Arias noted Uber, DoorDash Inc. and Lyft Inc. have donated $30 million each into campaign accounts for a possible initiative or referendum targeting AB 5. Both he and Gonzalez expressed optimism such an initiative would probably be voted down easily. Gonzalez said these so-called gig economy companies never put a reasonable compromise on the table, as did medical professionals, constrcution contractors and others who got exemptions written into AB 5.

"We've engaged in good faith with the Legislature, the Newsom administration and labor leaders for nearly a year on this issue, and we believe California is missing a real opportunity to lead the nation," an Uber spokesman said in an emailed statement.

Lawyers on both the worker and employer sides are skeptical that the ridesharing company can get around part B of the Dynamex ABC test, the claim its drivers are not part of Uber's "usual course of business."

Some of that litigation will come from employees themselves, or from "injunctive relief to prevent employee misclassification to be brought by the attorney general and specified local prosecuting agencies," as the new law states. Gonzalez said this later provision was amended into the bill on Sept. 6 to help ensure enforcement.

Employers have already responded to Dynamex by turning some contractors into workers, said Sheeva J. Ghassemi-Vanni, who represents employers as a partner with Fenwich & West LLP in Mountain View. But some of the Silicon Valley companies Ghassemi-Vanni represents may not be hiring people in the way Gonzalez and her allies hoped.

"They've certainly been reexamining their contractor workforce," Ghassemi-Vanni said. "There is actually a temporary employee classification that can get you more in line with AB 5 and Dynamex because you're making the person an employee, but for a short period of time."

Ghassemi-Vanni noted many disputes over employee status come at the end of an engagement of a contractor or temporary worker, for instance when they file for unemployment. What classification the worker ultimately is offered by a particular company is often a "risk assessment" at this point, she said.

Fessenden said there are other aspects of AB 5 that could also end up in court. For instance, the law contains rules describing what is considered a "bona fide business-to-business contracting relationship" that could also affect who is ultimately considered an employee.

"This wave of legislation is designed to spread liability to as many potential or putative or theoretical employers as possible," Fessenden said.