SACRAMENTO – California businesses are being left to carry the burden of the recent decision by the California Supreme Court and Assembly Bill 5, according to the president of the Civil Justice Association of California.
AB 5 codifies the “ABC” test to determine if workers are employees or contractors. Previous to this, employers relied on state court precedence set 30 years ago; then, in 2018 it was expanded by the Supreme Court's Dynamex decision. This three-part test helped businesses define if workers were independent contractors or regular employees. In today’s gig economy, expanding this definition has far-reaching consequences for companies like Uber and Lyft that depend on a pool of contract workers who set their own hours and decide when and where to work.
The Dynamex decision made it harder for companies to classify workers as contractors.
“The California Supreme Court’s Dynamex decision already imposed far too stringent of a standard for employee versus independent contractor classification, creating a minefield for California businesses,” Kyla Christoffersen-Powell, president and CEO of the Civil Justice Association of California, said.
The current legal opinion from the California Supreme Court takes the legal minefield a step further by making the decision apply retroactively, she says.
“A retroactive application takes this a step further, subjecting businesses to even more liability exposure and giving plaintiffs’ attorneys expanded opportunity to shakedown businesses,” Christoffersen-Powell said. “If this ruling stands, we can expect an even bigger wave of litigation that drives entrepreneurs out of business and negatively impacts California’s economy.”
The three part “ABC” test says workers are independent contractors only if they meet the following three conditions: The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; the person performs work that is outside the usual course of the hiring entity’s business; and if the person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
Various interested entities and organizations have vowed to fight against the decision, promising that the legal question is far from settled as it continues to work its way through the court system. Apart from that, several companies, including Uber and Doordash, are working to get the law overturned by a referendum on the 2020 general election ballot.