Since 2018, there has been a flurry of activity in the California courts and legislature regarding the classification of employees and independent contractors.
Dynamex establishes the ABC Test for wage and hour claims
In 2018, the California Supreme Court decided Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903 (“Dynamex”) addressing the how employees and independent contractors are classified as such under California’s Wage Orders. The Court established the ABC Test, holding that a worker can only be classified as an independent contractor under the Wage Orders if the employer establishes: “(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.” (Dynamex at pp. 916-917). If an employer cannot establish that a worker meets all three parts of the test, that worker must be classified as an employee for purposes of wage and hour matters. The Dynamex ruling is considered by most as making it more difficult to classify workers as independent contractors in California.
AB 5 codifies the ABC Test
In 2019, following the Dynamex ruling, the California legislature passed Assembly Bill (“AB”) 5, which became effective January 1, 2020. AB 5 codified and expanded the Dynamex ruling by making the ABC Test the approved test for not just wage and hour matters, but for purposes of the California Labor Code and the Unemployment Insurance Code as well.
Businesses push back with Proposition 22
Many businesses, especially those that extensively rely on independent contractors, such as rideshare companies Uber and Lyft, heavily lobbied against AB 5. Even after AB 5’s passage, the rideshare companies refused to reclassify their workers as employees. Instead, Uber and Lyft, joined by food delivery companies such as DoorDash, Instacart, and Postmates, funded a ballot initiative, Proposition 22, exempting rideshare and food delivery companies from AB 5 requirements. Proposition 22 supporters spent over $200 million dollars and the Proposition was ultimately passed by voters in November 2020.
Legislature adjusts independent contractor rules with AB 2257
In 2020, the legislature addressed some of the problems with AB 5 by passing into law AB 2257. AB 2257 expanded exemptions to the ABC test for professions that were significantly impacted by AB 5’s passage, including in areas such as freelance writing, photography, videographers, journalists, musicians and other workers in the recording industry, and other creative workers. AB 2257, however, did not exempt some businesses that have historically relied heavily on the work of independent contractors, such as the motion picture and television industry and the trucking industry.
Vasquez decision applies ABC Test retroactively
On January 14, 2021, the California Supreme Court issued a published decision in Vazquez v. Jan-Pro Franchising International, adding a new wrinkle to the ever-expanding laws concerning independent contractors. In Vasquez, the Supreme Court held that the Dynamex decision applies retroactively. That means, all “nonfinal cases that predate the Dynamex decision” will utilize the ABC Test to determine if independent contractors were properly classified. The statute of limitations for wage and hour claims based on the California Wage Orders can be up to four-years. As such, the Vasquez ruling could significantly impact employers who believed they were properly classifying independent contractor prior to the Dynamex decision.
Gibbs Giden can assist you with questions about classifying your workers.
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Matthew Wallin is a senior associate in the Los Angeles office where he practices labor and employment law. He has extensive experience defending private business and public entities in litigation and advising clients on labor compliance issues.
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