Could Business Owners be Forced to Grapple with Further Changes to Worker Classification Law

Business owners, and their counsel, should be aware that more changes to the laws dictating worker classification could be on the horizon. 

California state lawmakers Lorena Gonzalez and Melissa Melendez recently proposed competing bills in response to the landmark California Supreme Court Dynamex Operations W. v. Superior Court (2018) 4 Cal.5th 903 (“Dynamex”) decision published in 2018. Assemblywoman Gonzalez’s bill, AB5, would codify Dynamex whereas Assemblywoman Melendez’s bill, AB71, would override Dynamex and reinstate the old multi-factor test under S.G. Borello & Sons, Inc. v. Dep’t of Indus. Relations (1989) 48 Cal. 3d 341.

There is, however, a third possibility: a new law could be passed altogether.  Some speculate that such a law could be passed as a way to strike a compromise between the old test and the new Dynamex test.  California’s new governor, Gavin Newsom, seemed to allude to such a possibility during his recent State of the State speech.  In the prepared remarks on the Governor’s website, Governor Newsom said, “It’s time to develop a new modern compact for California’s changing workforce. This is much bigger than Dynamex.”

Dynamex created a new legal test – commonly known as the ABC test – dictating whether a worker is classified as an employee or an independent contractor under applicable wage orders. The general consensus is that the ABC test makes workers more likely to be classified as independent contractors rather than employees. The distinction is important because business owners incur more costs with employees than with independent contractors. For example, businesses must do the following for employees but not for independent contractors: pay minimum wage, pay overtime wages (for nonexempt employees), provide rest and meal breaks (for nonexempt employees).  Additional laws and requirements also apply differently to independent contractors and employees.

Some business owners say they can only afford to retain workers as independent contractors and would not be able to shoulder the additional costs that are required if the same workers were classified as employees.

Business owners and their counsel still adjusting to the new legal landscape following Dynamex would be well advised to follow developments in the California legislature closely because the final outcome may require further changes to how businesses structure their workforce.

Patrick Klingborg is an Associate with The Law Offices of Lincoln, Gustafson & Cercos, LLP. 

**This article is for information purposes only and does not contain or convey legal advice. The information herein should not be relied upon in regard to any particular facts or circumstances without first consulting an attorney. Any views expressed are those of the author only and not of the SDCBA or its Business & Corporate Law Section.**