ASSEMBL ASSEMBLY Y BILL 5 BILL 5 Signed into law on September 18, 2019 by Governor Newsome Effective January 1, 2020 Codifies the decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) (“ Dynamex ”) Expands Dynamex to the Labor and Unemployment Insurance Codes. Most contentious piece of legislation during 2019 Session Ann M. Grottveit March 26, 2020
The ABC Test All workers are presumed to be employees unless the business proves the following: A Worker is free from control and direction of the business. ➢ Focus: the degree to which the business has retained the right of control over the work, by contract or in actual practice ( Borello) B Work performed is outside the usual course of business. ➢ Is the work incidental or an integral part of the business? ➢ Example: Retail manufacturer hires plumber vs. work at home seamstress C Worker customarily engages in the independently established trade, occupation or business. ➢ Focus: the burden / benefit of self-employment through incorporation, licensure and advertisement 2
Occupations: Lawyers Doctors Exemptions Veterinarians Architects Engineers Accountants Securities brokers AB 5 is an exemption law. Investment advisors Commercial fishermen Various professions and occupations are Construction industry subcontracts Real estate agents and brokers exempt from the ABC test, along with Cosmetologists Barbers certain professional services contracts. Professional services contracts: There is also a business-to-business HR administration Marketing exemption which is subject to statutory Graphic arts Journalists conditions. Photographers *Proposed 2020 legislation also seeks to exempt marriage and family therapists, loggers, musicians, independent truckers, youth sports referees, freelance writers, editors, and newspaper 3 cartoonists.
LEGAL C LEGAL CHALL HALLENGES ENGES California Trucking Association v. Becerra et al, United States District Court, Southern District of California The California Trucking Association (CTA) challenged AB 5 asserting that Prong B is preempted by the Federal Aviation Administration Authorization Act of 1994 (FAAA). December 31, 2019 - District Court agreed and entered a Temporary Restraining Order (TRO) finding that CTA had demonstrated that AB 5 mandates that motor carriers treat owner-operators as employees and that irreparable harm was likely due to the risk of governmental enforcement actions and penalties. January 16, 2020 - A preliminary injunction was entered as to any motor carrier operating in California, pending entry of final judgment in this action. 4
LEGAL LEGAL CHALLEN CHALLENGES GES Olson et al v. Becerra et al , United States District Court, Central District of California The People of the State of California v. Cal Cartage ( Uber ) Transportation , This case challenges AB 5 on first Superior Court of Los Angeles amendment and equal protection grounds. The plaintiffs did not seek a TRO, and the In a similar case in state court, the Los Angeles Superior Court has also preliminary injunction was denied on found Prong B is preempted as to motor carriers and their drivers by the February 10, 2020. FAAA. American Society of Journalists and Authors, Inc. v. Becerra, The LA Superior Court found that under the ABC test, motor carriers were United States District Court, Central District of California prohibited from using independent owner-operator truck drivers. TRO sought and denied by the Court due to plaintiffs’ failure to demonstrate an emergency need for relief. Motion to dismiss granted on March 20, 2020. 5
Truc ucking R king Rela elationships tionships Use Grower employees 1 Grower Owned Trucks Qualifies for the business-to-business exemption Recommend written contract that establishes the following: 2 Trucking Company ➢ Independent business entity (LLC, corporation, sole proprietorship) with separate location ➢ Advertises and contracts with businesses other than you ➢ Has all required business licenses and registrations ➢ Should have a contract with the Dispatch Company that establishes the business-to- business exemption ➢ Carriers will be considered employees of the Dispatch Company 3 Dispatch Company ➢ Joint Employer analysis is not a part of AB 5, only concern is that Driver is an employee ➢ Significant burden on Dispatch Company will lead to industry disruption ➢ Prohibited under AB 5 ➢ Will not qualify for the business-to-business exemption ➢ Licensing issue: Owner Operators lease their services and trucks and lack independent Owner Operator / operating authority 4 ➢ Independent Truckers Separate business location and contracting requirements are a barrier for the FAAA ➢ Cannot negotiate their own rates with the motor carrier, pursuant to Federal law ➢ Motor carriers can contract with Independent Truckers, pursuant to the Preliminary Injunction. 6
Temporary Personnel Services Office work, farm labor for hand-picking or dryer work Business model is that worker is employee of the Temporary Service business, similar to Office Temps or Farm Labor Contractors. Business-to-business exemption applies and contractual Non-Truc Non ucking king relationship makes clear that FLC is a business as noted above Contr Con tracto actors Seasonal Work Same analysis as above Considered employees unless employees of a separate entity, such as a Farm Labor Contractor. Irrigators/Pesticide Applicators Employees of Wilbur-Ellis or a separate business and qualify for the business-to-business exemption. 7
Cust Custom om Far arm m Ser Services vices Aerial Application, land leveling, custom harvesting - Independent contractor is an established business entity - Contracts with other businesses to provided same or similar Business to Business services exemption - Maintains a separate business location with required licenses and registrations to perform services - Best practice: have a business to business written agreement between farms Farm where a portion is custom - Avoid complication if litigious neighbor farm harvested by neighbor employee quits - Can be a single Memorandum of Understanding - Do not fight obstructed claims (EDD claims by contractors) Other Considerations - This will generate an EDD audit of your business 8
Protect App-Based Drivers & Services 2020 Proposed Legislation Campaign ➢ Sponsored by Uber, Lyft, and AB 1928 * – Repeal ABC test; require Borello test DoorDash ➢ Seeks to place referendum on CA AB 2075 * – Delay AB 5 implementation until Jan. 2021 2020 November ballot ➢ Exempt ride-hailing companies SB 1039 (spot bill) – “The Independent Worker Rights ➢ Require ride-hailing companies pay: Act of 2020” ▪ Drivers at least 20% more than • Create a 3 rd classification of workers minimum wage ▪ $0.30 per mile for wear and tear • Independent work for those who voluntarily choose ▪ Stipend for healthcare costs • Includes minimum wage and occupational accident coverage ▪ Accident insurance General consensus from political community is * These are Republican proposals and highly unlikely to be signed into that ballot measure will law. 9 pass easily
Recommended NEW Contract Language: 10 RECITALS CONTRACTOR represents and warrants that CONTRACTOR is an independently established business entity formed as a [sole proprietorship, partnership, limited liability company, limited liability partnership, or corporation], that customarily provides services of the same nature as the services provided for under this Agreement. CONTRACTOR represents and warrants that CONTRACTOR advertises these services to and contracts with entities other than . CONTRACTOR represents and warrants that CONTRACTOR maintains a separate business location and has all required business licenses and tax registration, if any, in order to perform services under this Agreement.
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