The issue of independent contractor classification is, perhaps unfortunately, something that many Californians have become too well versed in during recent years. To briefly recap, the issue gained renewed focus with the California Supreme Court’s, April 2018 decision in Dynamex Operations West, Inc. v Superior Court. There the Court ruled employers bore the burden of demonstrating any worker treated as an independent contractor was properly classified as such under the “ABC test” which looks to three main factors in determining whether independent contractor classification is proper. The ABC test is largely viewed as tougher for the employer to satisfy than the test previously adopted by the Court in the 1989 case of S.G. Borello & Sons, Inc. v. Department of Industrial Relations (referred to of course as the “Borello test”). However, as soon as Dynamex was issued, questions immediately arose regarding the extent of its applicability.
Less than a year later, the legislature enacted the game changing AB5. The authors of AB5 sought to codify and provide both broader applicability and more certainty to the ABC test. However, by the time the bill was ultimately passed it had dozens of exceptions for various industries and occupations. In response to vocal opposition from interest groups on all sides of the debate, AB5 went through further legislative changes. The new and current controlling legislation is AB 2257 which largely reflects AB 5 but with added exceptions and exempt occupations. However, app-based companies such as Lyft, Uber, and Instacart failed to convince the legislature that their workers should be excepted from the ABC test.
Consequently, companies utilizing app-based workers banded together and lobbied for the passage of Proposition 22 during the November 2020 election. Spending nearly $200 million on advertising, these companies were ultimately successful in pushing through Proposition 22, which received nearly sixty percent “yes” votes during the election. The purported purpose of Proposition 22 is “[t]o protect the basic legal right of Californians to choose to work as independent contractors with rideshare and delivery network companies throughout the state,” and it set up a comprehensive statutory scheme of rules and benefits applicable to app-based workers while continuing to classify these worker as independent contractors and not employees.
Ballot initiatives are often the end of the line for many causes, but that has not become the case with the independent contractor classification saga in California. On August 20, 2021, Judge Frank Roesch of the Alameda County Superior Court issued a decision wholly invalidating Proposition 22. Judge Roesch’s decision relied on nuanced constitutional analysis that is beyond the scope of this article, but, in sum, he found Proposition 22 unlawfully restricts “the power of a future legislature to define app-based drivers as workers subject to workers’ compensation law” and consequently struck down Proposition 22 in its entirety.
So, what does Judge Roesch’s ruling do for companies considering the use of independent contractors? The answer is not much unless those companies already fell within the narrow purview of app-based rideshare and delivery companies in California. Further, Judge Roesch’s ruling will certainly be appealed, setting up a years-long legal battle that may again wind up at the California Supreme Court.
For almost all other industries, AB 2257 and the ABC test continue to govern worker classification. Most importantly for employers, however, is what the overall impact of these laws mean. Many employers wrongly believe that an exemption from the ABC test results in the equivalent of a get-out-of-jail free card and that they do not need to worry about the question of independent contractor misclassification. This is not the case. Instead, if a company does, in fact, meet an exemption from the ABC test, the company will nevertheless most likely still need to consider whether the worker is property classified under the Borello test. While viewed as not as difficult to satisfy as the ABC test, the Borello test nevertheless also closely scrutinizes the classification of workers as independent contractors. Critcally, irrespective of the applicable worker classification test, all workers are presumed to be employees unless proven otherwise under California law.
In sum, independent contractor classification remains a complex and ever-changing minefield in California. Judge Roesch’s recent decision is by no means the end of story as further changes to the laws will almost certainly come through lobbying, legislation, and the courts. Scherer Smith & Kenny LLP is available to address any questions you may have related to these and any other employment-related laws and updates. For additional information, please contact Denis Kenny (denis@sfcounsel.com), Ryan Stahl (ryan@sfcounsel.com), or John Lough (john@sfcounsel.com).
- Written by Ryan Stahl