California governor signs bill codifying 'ABC' classification test

UPDATE: Sept. 20, 2019: California Gov. Gavin Newsom signed Assembly Bill No. 5 Wednesday, Sept. 18.

Dive Brief:

California state senators voted 29-11 Tuesday to pass Assembly Bill No. 5, also known as AB-5, which would codify a worker classification test for independent contractors in the state first adopted in 2018 by the Supreme Court of California.
If signed into law by Gov. Gavin Newsom, the bill would classify a person providing labor or services as an independent contractor if that person: a) 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) performs work that is outside the usual course of the hiring entity’s business; and c) is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.
The bill would make exemptions for several occupations. That list includes physicians, surgeons, dentists, lawyers, certain direct salespersons and commercial fisherman working on a U.S. vessel. The classification test would not be applied to certain persons performing work in "professional services" occupations, among others, according to the bill. The bill would take effect Jan. 1, 2020 if signed.

Dive Insight:

AB-5 is a major piece of legislation that would directly influence the independent contractor debate in a state that hosts several gig economy companies. "Whatever the bill's final form, this legislation will open a Pandora's box of litigation in a pro-employee environment," Jesse Jauregui, partner at Alston and Bird, told HR Dive in an emailed statement. "Other states will be watching closely as a patchwork of gig economy legislation begins to develop across the country."

Despite, the bill's passage, there are still some unresolved questions for employers in the state, perhaps most significantly the issue of whether its provisions will be applied retroactively. In Gerardo Vazquez, et al. v. Jan-Pro Franchising International, Inc., the 9th U.S. Circuit Court of Appeals ruled that the classification test adopted by the California Supreme Court — the same test codified by AB-5 — would be applied retroactively. The 9th Circuit withdrew that opinion in July, however, certifying the question of retroactivity to the California Supreme Court.

The situation adds up to a good deal of uncertainty for California employers, attorneys in the state previously told HR Dive. Employers may need to determine whether exemptions in AB-5 affect their workers specifically, yet the bill could still have unintended consequences, according to Jauregui.

Advocacy groups celebrated the news. Mobile Workers Alliance, a group that includes persons performing services via apps including Uber, Lyft, Postmates and Instacart, said in a tweet following the bill's passage: "This is what happened when drivers stand together! We did it and we're not stopping here."

Gig economy services may be particularly affected by the bill's provisions. DoorDash, Uber and Lyft reportedly spent millions of dollars to oppose AB-5, and the Los Angeles Times reported in July that Uber and Lyft promised extra pay to drivers who attended a rally to oppose the bill.