Governor Newsom To Sign Bill Making it Harder to Classify Employees as Independent Contractors

On Tuesday, September 10, 2019, the California Legislature passed Assembly Bill 5 that would codify the California Supreme Court’s decision made last year in Dynamex Operations West, Inc. v. Superior Court of Los Angeles. Governor Newsom has indicated his support for this bill and is expected to sign it into law.

The new law would go into effect on January 1, 2020, and would adopt the Supreme Court’s so-called “ABC Test” to determine if a worker can be classified as an independent contractor or if they must be treated as an employee entitled to benefits such as minimum wages, overtime pay, unemployment and workers compensation. Under the new law, all workers are presumed to be employees unless a business can show all of the following conditions:

1. the worker is free from its direct supervision,
2. performs work that is outside the usual course or place of business and
3. works “in an independently established trade, occupation, or business of the same nature” as the work they do for the entity that is hiring them.

The bill was heavily opposed by businesses in the “gig economy” such as Uber, Lyft and DoorDash, who rely heavily on independent contractors for their business models. Several industries lobbied successfully to have their workers excluded from the new law including doctors, dentists, lawyers, engineers, realtors and hairdressers.

If Governor Newsom signs the bill as expected, it will have wide-ranging effects on California businesses. Entities doing business in California that classify workers as independent contractors should consider reviewing their relationship with these workers to determine whether any such workers should be reclassified as employees.