AB 5 Passed! Law on Worker Classification is Changed Again

The storyline surrounding California’s law concerning independent contractors continues to have many twists and turns. We previously went into detail about the developments in case law concerning the “ABC” test and whether it applies retroactively. Now, it is Assembly Bill 5 (“AB 5”) that is receiving the attention of California employers, especially since it just passed September 10, 2019, through the California State Senate.

AB 5 will codify the decision in Dynamex Operations West, Inc. v. Super. Ct., (2018) 4 Cal. 5th 903, where the “ABC” test was adopted when evaluating whether a worker is an employee or independent contractor.

While AB 5 was passed by state legislators, the bill did have several new revisions throughout the past few months. Namely, workers from certain industries were exempted from having the “ABC” test applied when determining their work status, including licensed insurance agents, certain licensed health care professionals, registered securities broker-dealers or investment advisers, direct sales salespersons, real estate licensees, commercial fishermen, and workers providing licensed barber or cosmetology services. When evaluating whether a worker exempt from the “ABC” test is an employee or independent contractor, AB 5 requires the application of the decades-old test adopted in S. G. Borello & Sons, Inc. v. Department of Industrial Relations, (1989) 48 Cal.3d 341.

It should be noted that the bill is unclear as to whether it applies retroactively, which is a major concern for California employers. The bill states that it shall apply “retroactively to existing claims and actions to the maximum extent permitted by law while other provisions apply to work performed on or after January 1, 2020.” This language, as worded, is unclear. It may suggest that the bill is applied retroactively only as to claims made in lawsuits pending at the time the bill passes, but it could also suggest that it is applied retroactively if a claim has arisen at the time the bill passes, regardless if there is an active lawsuit or not. Indeed, this vague language will likely be clarified at some point by the courts.

Also, for employers seeking to use this change of law to reclassify employees as independent contractors under the provisions of AB 5, doing so could lead to a violation of the bill. AB 5 does not permit an employer to reclassify an individual who was an employee on January 1, 2019, to an independent contractor due to AB 5’s enactment.

If you seek a more detailed analysis of AB 5, including how it may apply to you or your business, please do not hesitate to contact Fadi K. Rasheed. Fadi is Counsel with Leech Tishman and a member of the firm’s Employment, Litigation and Corporate Practice Groups. Fadi is based in the Leech Tishman’s El Segundo, CA office. and can be reached at 424.738.4400 or frasheed@leechtishman.com. 

Leech Tishman’s Employment Practice Group can help clients ensure compliance with California’s complex and technical employment laws and can assist clients with defending against civil or administrative actions.

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Leech Tishman Fuscaldo & Lampl is a full-service law firm dedicated to assisting individuals, businesses, and institutions. Leech Tishman offers legal services in alternative dispute resolution, aviation & aerospace, bankruptcy & creditors’ rights, construction, corporate, employee benefits, employment, energy, environmental, estates & trusts, family law, government relations, immigration, insurance coverage & corporate risk mitigation, intellectual property, internal investigations, international legal matters, litigation, real estate, and taxation. Headquartered in Pittsburgh, PA, Leech Tishman also has offices in El Segundo, CA, Chicago, Los Angeles, New York, Sarasota and Wilmington, DE.