Carl Kanowsky, Esq.

As you’ll recall, Charles Lee, the guy who worked for Dynamex for fifteen days (yes, just 15 days), set the employment world on its head. Because of his lawsuit, it suddenly became much more difficult in California to justify classifying a worker as an independent contractor.

Under the new Dynamex standard, a company will have a heavy burden to disprove employment. Merely asserting a lack of control by the business will fail.

Instead, the company must establish “(a) that the worker is free from control and direction over performance of the work, both under the contract and in fact; (b) the work provided is outside the usual course of the business for which the work is performed; and (c) the worker is customarily engaged in an independently established trade, occupation or business. If the hirer fails to show that the worker satisfies each of the three criteria, the worker is treated as an employee, not an independent contractor.”

Still reeling from this, California employers were stunned to learn that this Dynamex or “ABC” test likely will be applied retroactively.

In other words, consider the company that for years has been relying on the old test to determine whether a worker was an employee or an independent contractor. Remember that test? The old standard tried to measure how much control a company exerted over its workers to determine which status applied. This test had been used and confirmed by courts for decades.

Now, under the ABC test, it’s not so much about control. Rather, unless the work provided is outside of the normal business of the company (such as a pizza shop hiring someone to paint the store’s exterior), there is an excellent chance the worker will be treated as an employee.

So, if a worker now challenges that he should be an employee and not an independent contractor, the ABC test will probably be used even though the business relied on the old, court-approved test of control. Stated another way, the ABC test will likely apply retroactively.

Why the hedging words such as “probably” and “likely”? Because it was a case (Vazquez v. Jan-Pro Franchising International, Inc.) from the Ninth Circuit Court of Appeals, a federal court rather than a California state court, which ruled two months ago that the ABC test applies retroactively. And, while decisions from federal courts can be persuasive as they decide state law issues, their final rulings do not bind the state courts. But federal persuasion will likely win the day.

To add insult to injury, on May 29, the state Assembly passed AB5, the codification of the Dynamex decision. The state Senate has begun the process of considering and ultimately voting on AB5.

According to the Legislative Analyst:

“The bill would provide that the factors of the “ABC” test be applied in order to determine the status of a worker as an employee or independent contractor for all provisions of the Labor Code and the Unemployment Insurance Code, except if a statutory exemption from employment status or from a particular obligation related to employment or where a statutory grant of employment status or a particular right related to employment applies. The bill would exempt specified professions from these provisions and instead provide that the employment relationship test for those professions shall be governed by the test adopted in S.G. Borello & Sons Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, if certain requirements are met. These exempt professions would include, among others, licensed insurance agents, certain licensed health care professionals, registered securities broker-dealers or investment advisers, direct salespersons, real estate licensees, workers providing hairstyling or barbering services, … licensed repossession agencies who meet requirements, and those performing work under a contract for professional services, with another business entity, or pursuant to a subcontract in the construction industry.”

Reportedly, Uber, Lyft and others of the “gig economy” are furiously trying to convince the state Legislature to include them in the list of exempted businesses or professions. As of this writing, those efforts have failed.

So, if AB5 becomes law, except for a few exceptions, the ABC test will be the litmus test for determining if a worker is an employee or an independent contractor. That may take the air out of Uber’s uber value of $100 billion. Stay tuned.

Carl Kanowsky of Kanowsky & Associates is an attorney in the Santa Clarita Valley. He may be reached by email at cjk@kanowskylaw.com. Nothing contained herein shall be or is intended to be construed as providing legal advice.