Employment Status in the Gig Economy Global 2020 NRF Publication - California

Gig workers: State of the law

In 2018, the California Supreme Court adopted the “ABC test,” under which a worker is an independent contractor only if: (A) the worker is free from the control of the company in connection with work performance; (B) the worker performs work outside the company’s usual business; and (C) the worker is engaged in an independent business of the same nature as the work performed. The second prong of this test made it nearly impossible for a business to classify any workers as independent contractors.

The California legislature codified this decision in late 2019 through California Assembly Bill 5 (“AB 5”). AB 5 includes many carve-outs, however, exempting certain workers such as most physicians, insurance brokers, architects, engineers and lawyers from the ABC test. The exempt workers will most likely be considered independent contractors and not employees unless the hiring company exercises control or has the right to control the manner and means in which their work is performed. In September, more contract workers became exempt from AB 5 with the passage of AB 2257, including freelance writers, youth sports coaches, and real estate appraisers, among a total of 18 new exemptions.

And, in November, California voters approved Proposition 22 which exempts gig workers in the transportation, food, and delivery service industry from the ABC test and AB 5. Under Prop 22, workers may be classified as independent contractors if the contracting companies:

• Do not unilaterally schedule workers for shifts on specific days/times, or require a minimum number of hours.
• Do not remove a worker’s access to the platform for refusing any specific offer.
• Do not restrict workers from working on other apps – except during deliveries.
• Do not restrict workers from working other jobs.

What are the grey areas in the law?

Despite the success of Proposition 22, California law overall takes a narrow view of independent contractors. With that said, other industries may well try to emulate Proposition 22’s success to further expand the viability of the independent contractor model in California. Many industries continue to lobby for additional AB 5 exemptions.

For now, there are three categories of independent contractors: (1) those covered by Proposition 22; (2) workers who are covered by the roughly 100 exemptions from AB 5 (and not subject to the right of control of the hiring entity); and (3) the remaining workers who qualify as independent contractors under the stringent ABC test and AB 5.

What legal developments are expected in the future?

Legislation at the federal level could limit the impact of Proposition 22. President-Elect Joe Biden and Vice President-Elect Kamala Harris were both opposed to Proposition 22 and Joe Biden has even promised to create a federal version of California’s AB 5, implementing the same ABC test. If the Biden Administration were to use the executive branch to reclassify gig workers as employees, the Department of Labor could sue the companies employing them for failing to pay minimum wage and overtime. In addition, the National Labor Relations Board, once it regains a Democratic majority with Biden appointees, could revisit and reverse existing precedent and hold that gig workers are not independent contractors, but are employees under federal labor law. That would allow these gig employees to unionize, among other things.

For many labor advocates, the writing appears to be on the wall: the passage of Proposition 22 could mark the beginning of similar legislation or ballot measures across the country. As of now, New Jersey and New York are among the states looking to address classification issues in the way that AB 5 did, but Proposition 22’s passage may halt those efforts.

Rideshare companies have also been pushing states and the federal government to add a third classification, a hybrid between independent contractor and employee that would afford some, but not all of the benefits enjoyed by employees. The coming years will show the widespread effect that AB 5 and Proposition 22 in its wake will have on the country.