Governor Signs AB 5 Creating New ABC Test for Independent Contractors

In the last week of the 2019 Legislative session, lawmakers passed a monumental piece of legislation that will have significant implications to California businesses who utilize independent contractors.

AB 5 by Assembly Member Gonzalez codifies into law the California Supreme Court’s decision in Dynamex v. Supreme Court that a person providing labor or services is considered an employee rather than an independent contractor unless the hiring entity demonstrates that the person meets a three-part “ABC” test.

AB 5 provides that the ABC test for classification of an employee versus a contractor applies to the provisions of the Labor Code, the Unemployment Insurance Code, and the wage orders of the Industrial Welfare Commission.

The ABC test states that a person providing labor or services is an employee UNLESS that person is:

  1. free from the control and direction of the hiring entity in connection with the performance of the work,
  2. the person performs work that is outside the usual course of the hiring entity’s business, and
  3. the person is customarily engaged in an independently established trade, occupation or business.

California Citrus Mutual and other agricultural associations opposed the bill because of the potential impact to packers, growers, and Farm Labor Contractors that regularly hire independent truckers and haulers to move fruit.  This bill contains numerous exceptions to the Dynamex test, however, no exception was made for owner-operator truck drivers that serve the agricultural industry.

Unless the hiring entity can affirm that each of the three parts in the ABC test are met, the hiring entity (packer, grower, FLC, etc.) would have to reclassify currently independent contractors as employees.

The linchpin is the ABC test.  CCM highly recommends that hiring entities seek legal counsel to help them determine if their current contract arrangements satisfy the ABC test. As a reminder, CCM members receive one free hour of legal counsel with the Saqui Law Group, a Division of Dowling Aaron Incorporated.

AB 5 passed on a party-line vote in both houses and was signed by the Governor on Wednesday, September 19, 2019.

During the debate, several legislators brought up the concern with owner-operator truck drivers and expressed the need to continue this discussion to provide further exemptions. CCM and others are following up with these members to see if there is a path forward next session.

In his signing message, the Governor announced that he intends to convene a working group to determine how to allow those excluded from the National Labor Relations Act the right to organize. CCM will be engaged as this issue moves forward.

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