If you are getting whiplashed and confused by the enactment of Assembly Bill 5 – California’s controversial new “gig worker” law – you are not alone.
It’s the subject of several lawsuits, some expected to go all the way to the U.S. Supreme Court, protests, job losses and even an initiative, Proposition 22, on the November ballot.
Meanwhile, the Legislature recently tried to clean up the mess it created by passing an “urgency law,” which Gov. Gavin Newsom signed, which exempts even more freelancers and independent contractors from the onerous new job rules. AB 5 initially exempted dozens of jobs – mainly at the behest of powerful industry lobbyists.
So, where does that leave local employers who rely on independent contractors, but fear hiring them? As I wrote when this law went into effect in January, it leaves them acting cautiously and using independent contractors only when necessary.
To review how we got here:
Authored last year by San Diego Democratic Assemblywoman Lorena Gonzalez, a former labor organizer, AB 5 was introduced in the wake of the California Supreme Court’s Dynamex ruling, which redefined the classifications of “contract worker” and “employee,” who is entitled to receive benefits and protections.
Dynamex is a nationwide, on-demand, same-day, pick-up and delivery service. Prior to 2004, the company classified its California drivers as employees. In a cost-cutting move starting in 2004, Dynamex reclassified the drivers as “independent contractors.”
For 30 years prior to the court’s landmark 2018 ruling, the 11-factor Borrello test was applied to classify “independent contractors.” The test basically focused on whether the employer had control over the means and manner of the work performed. Also considered was if the contractor used his or her own work tools, had established a business and was able to work for other clients.
The 2018 Dynamex ruling replaced that with an ABC test, which asks if contractors: A) Are free from control or direction in work performed; B) Perform specialized services that differ from a client’s usual business; and C) Maintain an independently established business offering services to clients.
Within that test, Gonzalez crafted a far-reaching bill that exempts some industries and restricts the work in others. Basically, AB 5 limits employers’ ability to label workers as “independent contractors” and requires benefits, such as sick pay and overtime pay, to be provided to contractors who work beyond the limits.
Among the occupations exempted from the new law were doctors, lawyers, architects, engineers, marketing specialists, human resources administrators, travel agents, graphic designers, building contractors, hair stylists and barbers, licensed estheticians and manicurists. But so many others were affected that a backlash prompted a scramble to amend AB 5. It also triggered numerous lawsuits, including by freelance writers, journalists and photographers.
The trucking industry, which relies on independent owner-drivers, contended it was being singled out. It obtained a temporary injunction to block the law. While the industry has won several state court rulings, it is expected the case will go all the way to the U.S. Supreme Court.
And on-demand companies, such as Uber and Lyft, have placed Proposition 22 on the November ballot to classify their drivers as independent contractors. Most on-demand drivers are part time and use their incomes to supplement other jobs. Surveys have found these drivers overwhelmingly wish to remain independent contractors.
The clean-up bill, passed recently by the Legislature and signed into law by the governor, expands the exemptions, but for some industries does not go far enough.
Clearly California’s restrictive independent contractor law is far from “settled.” This leaves employers in a tough spot. Lawsuits can take years to resolve and voters will not decide the fate of on-demand drivers until next month.
So, what should business owners and managers do in the meantime?
- Audit current company practices and classifications. Consult an attorney and human resources specialist.
- If independent contractors seem to be misclassified, or there is some doubt, change the working arrangement, or move the freelancer to employee status.
- Update organizational charts to cautiously conform to existing law.
- Review and, if necessary, revise independent contractor agreements.
- Replace casual freelance arrangements with carefully written contracts.
Karen Bonanno is president of the Bakersfield-based human resources consulting firm P.A.S. Associates and P.A.S. Investigations. She can be contacted through her website www.PASassociates.com and through the P.A.S. Facebook page.