[USA- California] Amended misclassification bill supported by governor

At the end of August, the California State Senate Appropriations Committee Assembly approved controversial legislation with the potential to reclassify millions of independent contractors as “employees” under California state labour laws, Littler reports.

On Friday, August 30, 2019, the Committee approved Bill 5 (A.B. 5) and took it one step closer to a vote in the full Senate. The Senate is expected to approve the measure soon. On September 2, California Governor Gavin Newsom (D) wrote an op-ed in the Sacramento Bee (link via original reporting) publicly announcing his support for the measure, following months without clarifying his position.

The bill would codify and expand the holding of the California Supreme Court’s 2018 Dynamex decision, which adopted the “ABC test” to determine whether a worker is an independent contractor or an employee under state labour laws.  Under the terms of the ABC test, a worker is presumed to be an employee, unless a hiring entity can prove the worker is an independent contractor using a three-part test.

A significant number of the estimated two million independent contractors working in California - around 10% of the state’s workforce - are expected to now be considered employees, under the ABC test.  Qualifying workers will be covered under a range of state labour laws now, including laws governing wage and hour requirements and providing collective bargaining rights.

The amended bill includes new exemptions for industries, including construction trucking, travel agents and commercial fisherman, but fails to address the ongoing concerns of industries including general long-haul trucking, on-demand ride-share services, franchisors and others.

Ongoing efforts to strike a compromise that these industries might support continue but no deal seems to have been reached and, at present, a deal seems unlikely.  A group of on-demand employers have pledged a combined $90 million to challenge the bill with a referendum, should it become law.

The bill continues to include specific exceptions for a number of identified professions - architects, investment bankers, doctors, dentists - and there is an exception for other workers providing “professional services” if they pass a multi-factor test.

Yet parts of the bill appear to raise more questions than they answer and the language is unclear.

On the matter of whether the bill’s provisions will apply retroactively the amended language is far from clear.

The amended bill says that insofar as certain sections would shield employers from liability, its provisions “shall apply retroactively to existing claims and actions to the maximum extent permitted by law.”  It is not made clear if that retroactivity would apply solely to claims that have already been made, or to those that may have arisen but have not yet been formally filed. It is also unclear what “the maximum extent permitted by law” means in this specific context.

Since the bill is clear that its provisions will apply broadly to work performed after January 1, 2020, this section, if not clarified, could likely lead to a “run on the courthouse” as workers attempt to get their claims on record.

The bill, for the first time, also includes language specifying that the ABC test shall be used to determine whether a worker is an employee “rather than an independent contractor”, which suggests that it is not intended to be a broader test for joint employment or liability. Again, the language, its intent, and practical implications are unclear.

In several instances, the A.B. 5 says an employer may not reclassify a worker who was classified on January 1, 2019, as an employee as an independent contractor “due to [the bill’s] enactment.”  Suggesting an employer may not reclassify an employee just to fit within a new exemption or in response to the bill’s passage. It is less clear whether an employer can reclassify such workers for legitimate business reasons rather than simply as a result of the bill becoming law.

It is a possibility that answers to these questions - or clarifying language - might be added to the bill or addressed in Senate floor debate.

Following the governor announcing his support of the measure, it is highly likely that A.B. 5 will be approved by the state senate quickly and sent to the statehouse for signature soon.