Today, September 18, 2019, Governor Gavin Newsom signed Assembly Bill 5 (“AB 5”) which codifies the “ABC Test” established in the landmark case of Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903 (“Dynamex”). Inter alia, the Dynamex case created the presumption that a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that the person (the ABC Test): (A) is free from the control and direction of the hiring entity in connection with the performance of the work; (B) performs work that is outside the usual course of the hiring entity’s business; and (C) the person is customarily engaged in an independently established trade, occupation, or business. Not only does AB 5 codify the ABC Test, but it also expands the scope of the Dynamex decision (which was limited in scope and application to wage orders issued by the Industrial Welfare Commission) to also apply to all provisions of the Labor Code and the Unemployment Insurance Code.
In addition, AB 5 provides that any statutory exception from employment status or any extension of employer status or liability remains in effect, and that if a court rules that the ABC Test cannot be applied, then the determination of employee or independent contractor status shall be governed by the test adopted in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 (“Borello”). AB 5 provides specific exemptions for specified occupations from the application of Dynamex, and would instead provide that these occupations are governed by Borello. Such exempt occupations include, inter alia, licensed insurance agents, certain licensed health care professionals (physicians, surgeons, dentists, podiatrists, psychologists, veterinarians), certain licensed professions (lawyers, architects, engineers, private investigators, accountants) registered securities broker-dealers or investment advisers, direct sales salespersons, real estate licensees, commercial fishermen, workers providing licensed barber or cosmetology services, and others performing work under a contract for professional services, with another business entity, or pursuant to a subcontract in the construction industry.
AB 5 will take effect January 1, 2020 and is intended to retroactively apply to existing claims and actions. The passage of AB 5 is indeed a landmark piece of legislation which effectively ends the independent contractor status in California. AB 5 was supported by many as a dramatic improvement for many workers by guaranteeing those workers fair wages and treatment. However, AB 5 is expected to have serious wide-ranging repercussions for California employers, specifically in the gig-economy (Uber, Lyft, DoorDash, etc.) and consumers alike.
As always, if you have any questions concerning AB5, please do not hesitate to email me at Stephen@mrclaw.com