California Assembly Bill 5 Legislation – An Expansive and Potentially Onerous Definition of Employee Status Under California State Law

The California General Assembly has been debating for the past few months whether to incorporate, in large part, a decision of the California Supreme Court in the Dynamex Operations West, Inc. v. Superior Court case. The holding of the Court in that case considerably expanded the definition of employee status under California law and would increase by hundreds of thousands the number of individuals in the State who would be reclassified as employees and no longer be classified as independent contractors. Specifically, the Court held that the following test should be applied in determining whether an individual is an employee or an independent contractor:

• 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;
• The worker performs work that is outside the usual course of the hiring entity’s business; and
• 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.

Prong 2 of such test is particularly far-reaching as it would disqualify many individuals who are currently properly classified as independent contractors. Such prong would prohibit individuals who perform on an episodic and periodic basis, services for user-employers that are similar to, if not identical to, those offered by the user-employer from being classified as independent contractors.

The Dynamex decision has been the subject of considerable criticism and employer concern. It is an important part of an ongoing and complex legal and practical discussion of where the demarcation line should be drawn between independent contractor status and employee status. Proponents of the California legislation that would codify the Dynamex decision in State law are facing considerable opposition from employers throughout the State of California. There are also differing positions apparently being taken within the labor community regarding the desirability in passing AB 5. Presidential politics have also entered the discussion as Senator Elizabeth Warren has urged the passage of AB 5 in its current form. It remains to be seen what the California General Assembly will ultimately do regarding such legislation. In the interim, California employers and other stakeholders that have an interest in this discussion should work through their elected representatives and trade associations to state their position regarding AB 5. As has been the case with a number of other recent labor and employment statutes enacted by the California General Assembly, AB 5 would appear to be a significant overreach, and also a clear misinterpretation of traditional common law principles defining independent contractor status. The Society plans to have a webcast regarding this issue in the fall, and our Labor and Employment Committee will continue to closely monitor this issue.