California’s legislature passed a far-reaching labor bill. It could make you collateral damage

The California Supreme Court’s 2018 decision in Dynamex Operations West v. Superior Court involved one trucking company that sought to turn its employees into independent contractors.

The court said the trucking company, Dynamex, broke labor laws, but the precedent created an entirely new standard for determining worker classification in this state. 

The decision was momentous, and it still reverberates around the state.

The Legislature followed in 2019 by enacting Assembly Bill 5, the labor-backed legislation that placed much of Dynamex into statute and expanded its reach.

Californians might be forgiven for thinking that the issue was resolved. But in reality, it is far more nuanced and complex than anyone, lawyers like me included, might have imagined a few years ago.

There is the jargon: The court adopted the ABC Test. That determines whether a worker can be an independent contractor or must be hired as an employee. 

Boiled down, this test says that if a worker is performing a task that is core to the company’s business, then he or she must be an employee.

Hence, Uber and Lyft are fighting back by spending tens of millions on an initiative for the November ballot that would preserve their business model by allowing them to continue using app-based drivers as independent contractors.

Then, there are California’s Industrial Welfare Commission’s Wage Orders, an arcane area of the law, but one that is important to the issue of AB 5 and Dynamex. 

These orders set forth working conditions and standards for a wide range of hourly workers, from printers and manufacturers to cannery workers.

AB 5 extended the ABC Test to all industries and to non-hourly workers. The legislation also expanded the court’s decision to apply beyond the Industrial Welfare Commission Wage Orders. That, too, was inevitable. It was probably just a matter of time before courts would have expanded those orders.

Without a statute, the Dynamex decision was the law of the land in California.

So if there were to be any changes to the ABC Test, or if any industry or profession were to be excluded from its application, representatives of those professions would need a statute explicitly exempting them.

The Legislature did grant exemptions in Assembly Bill 5—57 of them to be exact.

The irony, however, is that the two main targets of the proponents of AB 5 are most likely not going to be impacted by AB 5.

One target was the trucking industry. 

But U.S. District Judge Roger Benitez of San Diego has granted the California Trucking Association a preliminary injunction precluding enforcement of AB 5 to truckers, a decision likely to be upheld if appealed.

Benitez was following precedent when he ruled that the Federal Motor Carrier Safety Act and the Federal Aviation Administration Authorization Act of 1994 preclude application of AB 5 to truckers.

Another target was the so-called “gig economy,” those app-based drivers. 

While Uber, Lyft and other similar companies have not been successful in getting a federal court to exempt them from AB 5, they have collected more than a million signatures to place an initiative on the November ballot.

This measure would create a separate regulatory scheme for app-based drivers, and provide the workers with portable benefits. 

My prediction: It will pass. The companies already have $110 million for the campaign, a huge sum. And potential opponents, principally organized labor, will be spending money and time on races for control of Congress, the Legislature and, oh yes, the White House.

Where does that leave us? 

If your profession is one of the 57 that were exempted from AB 5—think physicians, insurance agents, Realtors—then your work life won’t change.

On the other hand, if you do not have an exemption and don’t obtain one soon, then you and the companies you work with or for are subject to AB 5. 

And that leaves a lot of individuals as collateral damage. These are people who were not original targets of the bill. And the number of professions is huge: 135 at least, from musicians to loggers and foresters, to amateur umpires.

Is that what the Legislature intended?

No one denies there are cases of worker misclassification. California’s Labor Commissioner should prosecute those who engage in it. But the Legislature needs to recognize that AB 5 is too expansive. 

First, California’s version of the ABC Test does not provide flexibility. It must be altered.

Second, there are about 45 professions licensed and regulated under the Business & Professions Code that do not have an exemption under AB 5. They should be exempted.

The Legislature could solve many of the problems by addressing an existing exemption for business-to-business agreements.

As it is, to comply with that exemption, a business has to meet 12, count them, 12 requirements. It’s simply not workable.

Californians understand that the workplace has changed. Companies that could not have been imagined 10 years ago are household names now. We also know workers deserve protections. 

But the Legislature has a chance in 2020 to make sensible changes to Assembly Bill 5. In doing that, legislators can avoid the collateral damage that is sure to disrupt businesses and the lives of workers.  

 ______

Chris Micheli is an attorney and lobbyist at the Sacramento governmental relations firm of Aprea & Micheli, Inc., cmicheli@apreamicheli.com. He wrote this commentary for CalMatters.