We’re now just a few weeks away from the nation’s most stringent independent contractor misclassification law taking effect in California. But if a group of truck drivers have their way, the law will stall out before it ever gets on the road. The California Trucking Association filed an amended lawsuit in federal court on November 12 asking the court to block the new statute from taking effect, claiming that it violates federal law and would harm over 70,000 independent truckers who have chosen to be independent workers. It appears to be the first legal challenge to California’s AB 5, and all eyes will be on this litigation over the next month.
As we reported just a few weeks ago, Congress has begun to gather information and consider the “future of work,” with considerable emphasis on the role of the gig economy. Although this emergency economy is growing rapidly, tension is also growing within its ranks. In particular, gig workers are attracted to earning money while maintaining all the flexibility and control they can exercise in these arrangements. But they are not entirely comfortable with the concept of being an independent contractor (IC) if that means they have no fringe benefits, are not covered by the minimum wage, and have no protection from non-discrimination laws. In this way, and in a much truer sense, ICs are “on their own.”
You’ve been waiting quite a long time for a critical ruling from the 9th Circuit Court of Appeals on the very fabric of the gig economy model – and you’re going to have wait even longer. The appeals court just announced late last week that the Lawson v. Grubhub case has been put on hold while it waits to hear from the California Supreme Court on whether the new ABC test should be applied retroactively to the case, or whether the appeal would apply the older flexible misclassification test that had been in place at the time the trial took place.
California Governor Gavin Newsom wasted little time by signing AB 5 into law earlier today, and his signing statement should cause quite a few eyebrows to be raised. It was no surprise that he signed the bill into effect; he said he would do as much in an op-ed posted several weeks ago in the Sacramento Bee. For those unaware, the new law will dramatically raise the bar for classifying a worker as an independent contractor in California by adopting the ABC test to just about all business arrangements (read our full summary here). But what was surprising was the contemporaneous statement he made while signing the bill into effect, signaling that the unionization of the gig workforce was the next step he’d like the state to pursue.
Negotiations continued right up until the end, but when the dust settled on California’s newest employment law, gig economy companies were not spared from the worst. Yesterday, state lawmakers passed AB 5, the state law that will not only codify the same ABC test introduced to the state in last year’s Dynamex decision but will take it a few steps further.
A California State Senate leader may have thrown cold water on the idea that we will see a 2019 legislative solution to the misclassification debate that would preserve the gig economy workforce model as we know it, but her office later clarified that a compromise was still possible before the close of this session. Senate President pro Tem Toni Atkins told Capital Public Radio on Wednesday that it is unlikely the legislature would be able to reach a deal that would provide protections for gig economy companies this legislative session but instead may have to wait until 2020, although her office later walked back those remarks and said that Senator Atkins is not ruling out some sort of legislative deal in 2019.
With just a one-page, single-paragraph Order, the 9th Circuit Court of Appeals yesterday provided the faintest glimmer of hope for gig economy businesses everywhere – but especially for those in California. The federal appeals court withdrew its May 2 decision that had extended the Dynamex decision on a retroactive basis, meaning that the ABC test might not necessarily be as broadly applied as we recently thought. Instead, the 9th Circuit decided to send the issue to the California Supreme Court, asking the state’s high court to conclude once and for all whether the ABC test should be applied to alleged misclassification controversies that arose before the Dynamex decision was ever issued. (For a quick primer on the Dynamex case and the ABC test, read here.)
Earlier this week, the California Assembly overwhelmingly passed AB5 – a measure that would codify the ABC test introduced to the state in last year’s Dynamex decision, and make life even more challenging for the average gig economy business. The best hope now is that the legislature will take business considerations into account during necessary compromise negotiations with the state Senate, and the bill will be modified from its present form to address some key issues…and perhaps exempt typical gig economy companies.
It’s been a busy week on the Dynamex front, and the news for businesses continues to get worse. As we recently discussed, the 9th Circuit held just last week that Dynamex and the ABC test should be applied retroactively. The very next day, California’s Division of Labor Standards Enforcement (DLSE) released an opinion letter concluding that the ABC test applies to both IWC Wage Order Claims and certain Labor Code provisions that enforce Wage Order requirements.
There’s no way to sugarcoat this one. Today the 9th Circuit handed a big loss to gig economy companies by concluding that last year’s Dynamex decision from the California Supreme Court and its wide-reaching ABC test should be applied retroactively. That means that the ABC test – which makes it very difficult for gig economy businesses to properly classify their workers as independent contractors rather than employees – will be applied to federal cases when evaluating relationships that businesses thought were to be adjudged under a much more flexible standard.