Employment Law Updates: (1) Independent Contractor Classification (AB 5) and (2) Mandatory Sexual Harassment Training for Small California Employers

2019 has been a busy year in the employment law front. We update you on two substantial updates that impact employers and employees alike: (1) the legislative pronouncement of the reach of the ABC Test on independent contractor classification and (2) the brief extension for small employers to provide mandatory sexual harassment training.

Independent Contractor Classification (AB 5): Dynamex ABC Test is the Law

When the California Supreme Court decided Dynamex Operations W. v. Superior Court (2018) 4 Cal.5th 903, this marked effectively a seismic shift in the classification of employees v. independent contractors (“IC”) for claims under California’s Industrial Welfare Commission Wage Orders (“Wage Orders”) leaving an after-shock of open questions in its wake. To recap, the Dynamex Court adopted the ABC Test for classifying ICs, which brought much needed clarity while making it more difficult to classify workers as ICs, but left a number of open questions. (Our September 2018 article, “Impact of Dynamex California Supreme Court Decision on Use of Independent Contractors,” noted that the Dynamex opinion left a number of open questions, including retroactivity and possible application to non-Wage Order claims.)

To that end, California’s legislature has brought some clarity to the Dynamex decision. On September 18, 2019, Governor Gavin Newsom signed Assembly Bill 5 (“AB 5”) into law, which will now appear as California Labor Code Section 2750.3 and amended California Unemployment Insurance Code Sections 606.5 and 621. In brief, under AB 5, the ABC Test applies to claims grounded in the Labor Code, the Unemployment Insurance Code and the Wage Orders, which are essentially California’s wage-and-hour laws.

Like any legislation, there are exceptions built into AB 5. For example, AB 5 exempts certain occupations from the reach of the ABC Test, including physicians, surgeons, dentists, lawyers, defined “professional services” occupations, certain direct salespersons and commercial fisherman working on a U.S. vessel, among others. While these specific occupations are “exempt” from the ABC Test, this does not mean that hiring entities have carte blanche to classify these occupations as independent contractors. Rather, AB 5 reiterates that the multi-factor, more flexible (and ambiguous) test(s) applied by California courts before Dynamex, commonly referred to as the Borello Factors Test, still apply.

Consequently, AB 5 will now control the issue of IC classifications. But the issue of retroactivity remains nebulous. AB 5 states that the ABC Test “does not constitute a change in, but is declaratory of, existing law with regard to wage orders of the Industrial Welfare Commission and violations of the Labor Code relating to wage orders” (emphasis added), but, in a later subsection, states that the ABC Test applies to “work performed on or after January 1, 2020.”

We should expect possible future legislative clarification of AB 5 as prominent opponents and proponents, alike, continue to lobby for change in its application. Moreover, the California Supreme Court will be revisiting one of its open questions concerning retroactivity. Notably, on September 24, 2019, the United States Court of Appeals for the Ninth Circuit—withdrawing its own decision holding that Dynamex applies retroactively (Vazquez v. Jan-Pro Franchising Int’l (9th Cir. May 2, 2019) 923 F.3d 575, 588, withdrawn, (9th Cir. July 22, 2019) 930 F.3d 1107)—certified to the California Supreme Court the question: “Does Dynamex Operations West Inc. v. Superior Court, 4 Cal.5th 903, 232 Cal.Rptr.3d 1, 416 P.3d 1 (2018), apply retroactively?” And, on November 20, 2019, the California Supreme Court granted the Ninth Circuit’s request to review that certified question. We should expect guidance on the retroactivity of Dynamex in the coming months.

Mandatory Sexual Harassment Training for Small California Employers

For those who have attended our Mandatory Sexual Harassment Trainings, we have emphasized the importance and the impact of the #MeToo movement on trainings to identify, prevent, and remedy discrimination, harassment, and retaliation in the workplace.

In the past, California law only required mandatory harassment training for supervisors employed by companies with 50 or more employees, but on September 30, 2018, the Governor signed SB 1343 into law that required employers with as few as 5 employees (“small employers”) to provide sexual harassment trainings of one-hour (for non-supervisors) and two-hours (for supervisors) every two years effective January 1, 2020.

While employers scrambled to comply with the January 1, 2020 deadline, in a last-minute reprieve, the Governor extended the deadline for small employers to provide the above sexual harassment training to their entire workforce from January 1, 2020 to January 1, 2021. (See SB 778.) So, small employers can breathe a sigh of relief as 2019 draws to a close, but should make efforts to comply with these mandatory training requirements, which will educate their workforces on #MeToo issues and prevent discrimination, harassment, and retaliation in the workplace.

We here at Scherer Smith & Kenny LLP remain available to address any questions you may have related to independent contractor classification and any other employment- or business-related issues. For additional information, please contact Denis Kenny at dsk@sfcounsel.com, Ryan Stahl at rws@sfcounsel.com, or John Lough, Jr., at jbl@sfcounsel.com

Written by Denis Kenny