United States: California Governor Expresses Support For Amended Misclassification Bill

On Friday, August 30, 2019, the California State Senate Appropriations Committee approved controversial legislation—Assembly Bill 5 (A.B. 5)—that would potentially reclassify millions of independent contractors as "employees" under California state labor laws.  The Committee's approval moves the bill one step closer to a vote in the full senate, which is expected to approve the measure in the very near future.  After months of not making his position on the bill clear, on September 2, 2019, California Governor Gavin Newsom (D) publicly announced his support for the measure in an op ed in the Sacramento Bee.

Broadly speaking, the bill would codify and expand the holding of the California Supreme Court's 2018 Dynamex decision, which adopted the so-called "ABC test" for determining whether a worker is an independent contractor or an employee under state labor laws.  Under the ABC test, a worker is presumed to be an employee, unless a hiring entity can establish the worker is an independent contractor under a narrow three-part test.  It is expected that a significant number of the estimated two million independent contractors working in California—roughly 10% of the state's workforce—will now be considered employees under the ABC test.  As such, these workers will now be covered under a range of state labor laws including those setting forth wage and hour requirements and providing collective bargaining rights.  (Littler's detailed analysis of the potential impact of this reclassification may be found here.)

The amended bill includes some new exemptions for specific industries, including travel agents, commercial fisherman, and construction trucking, but fails to address concerns raised by a broad range of industries, including on-demand ride-share services, general long-haul trucking, franchisors, and others.  While efforts have ostensibly been ongoing to strike a compromise that these industries might support, no deal appears to have been reached or at this point seems likely.  Indeed, a number of on-demand employers recently announced that they had pledged a combined $90 million to challenge the bill by way of a referendum if it becomes law.

The bill continues to include specific exceptions for a number of identified professions—doctors, dentists, architects, investment bankers—as well as an exception for other workers providing "professional services" that meet a multi-factor test.

In some instances, however, the bill appears to raise more questions than it answers.

For example, with respect to a key question—whether the bill's provisions will apply retroactively—the amended language is far from clear.  The amended bill provides 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 clear, however, whether that retroactivity would apply only to claims that have already been made, or those that may have arisen but have not yet been formally filed.  Nor is it clear what "the maximum extent permitted by law" means specifically in this context.  Given that the bill is clear that its provisions will apply broadly to work performed after January 1, 2020, it is likely this section, if not clarified, may lead to a "run on the courthouse" as workers attempt to get their claims on record.

Similarly, the bill for the first time includes language specifying that the ABC test shall be used to determine whether a worker is an employee "rather than an independent contractor"—suggesting that it is not intended to be a broader test for joint employment or liability—but again, the language, its intent, and its practical implications are far from clear.

Finally, the bill in several instances provides that 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."  This suggests that an employer may not reclassify an employee simply to fit within a new exemption or strictly in response to the bill's passage.  Less clear is whether an employer may reclassify such workers for legitimate business reasons and not simply as a result of A.B. 5 becoming law.  It is possible (although far from certain) that answers to these questions or clarifying language will be added to the bill or addressed in Senate floor debate.

Given the governor's announcement of his support of the measure, it is highly likely the bill will quickly be approved by the state senate and sent to the state house for signature in the near future.  

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