The ABCs, So to Speak, of Dynamex: AB 5

In the employment law field, everyone’s talking about Assembly Bill 5, the new law that’s supposed to address all the confusion about who is and who isn’t an independent contractor.

You remember how in April 2018, the California Supreme Court issued its ruling in the Dynamex case. That lawsuit concerned a very short-term worker for Dynamex, one of the gig economy businesses. He was treated as an independent contractor, which resulted in more money in his paycheck when he earned anything. That’s because there’s no withholding of taxes, so his net pay was also his gross pay.

The downside was that he lost out on numerous benefits and protections that employees enjoy. Things like a minimum wage, overtime pay, sick leave, worker’s compensation and unemployment insurance, just to name a few.

The world of independent contractors prior to the Dynamex decision was murky, to say the least. The Legislature had failed to pass any law detailing how to determine if one is an employee or an independent contractor. The Supreme Court had decided a case decades ago (Borello, it’s known as) that listed numerous factors that courts could use to determine a worker’s status. 

The problems were both the sheer number of factors and the reluctance of the court to say any one of them was dispositive. Consequently, there were lower-court decisions that seemed to reach different conclusions that provided little guidance to businesses and workers in ferreting out who was an independent contractor.

Along comes the Dynamex decision that truly simplifies the question as to whether a worker is an employee. The court prescribed a straightforward “ABC” test to answer this query. Essentially, does the worker perform work that is outside the usual course of the hiring entity’s business? If the answer is no, then the worker is likely an employee. Or, as the court said, “When a retail store hires an outside plumber to repair a leak in a bathroom on its premises,” then that is an independent contractor situation. But, “when a clothing manufacturing company hires work-at-home seamstresses to make dresses from cloth and patterns supplied by the company,” that will be an employment situation.  

Even though the logic and ruling were quite clear, there remained open issues. For instance, was the ruling retroactive? Subsequent to the Dynamex ruling, at least one court ruled that Dynamex was not limited to only prospective cases. But that decision came from a federal court, so was not binding on state courts on state law issues. Also, the Supreme Court approached the independent contractor only from the point of view of a specific wage order. Did it apply to other wage orders? What about workers compensation or unemployment insurance cases? How about wrongful termination or harassment cases? All unresolved questions.

Unresolved until earlier in September when Gov. Gavin Newsom signed AB 5 into law. Now, however, rather than the clarity of the Supreme Court decision, we have a multi-page law that goes into much more detail about who is not impacted by AB 5 than who is.

Dozens of professions are exempted from the law, including 1) a person or organization who is licensed by the Department of Insurance, 2) a physician and surgeon, dentist, podiatrist, psychologist, or veterinarian, 3) a lawyer, architect, engineer, private investigator, or accountant, 4) a securities broker-dealer or investment adviser or their agents and representatives, and 5) a direct sales salesperson.

But the exemptions don’t stop there. My future columns will delve into those. ©

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