With Some Exceptions, It Most Likely is the End of the Gig Economy in California

Last year, in Dynamex Operations West, Inc. v. Superior Court of Los Angeles County (Cal. 2018), the California Supreme Court drastically modified the analysis to properly classify workers as independent contractors in California. In short, the case creates a presumption that a worker will be an employee unless the hiring entity can establish all of the three following elements:

  • The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
  • The person performs work that is outside the usual course of the hiring entity’s business; and
  • The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Last week, Gov. Gavin Newsom signed Assembly Bill No. 5, which will go into effect on January 1, 2020. The bill essentially codified the California Supreme Court’s decision and the above elements, which must be met to properly classify an independent contractor.

However, the new law will also set out a variety of exceptions. Examples include certain health care professionals licensed by the state (i.e., physicians, surgeons, dentists, etc.), attorneys, salespersons, and certain commercial fisherman. Additional specific exceptions exist for certain professional service providers (i.e. marketing professionals, human resource professionals, and travel agents), real estate licensees, licensed repossession agencies, subcontractors, referral agencies, and certain business-to-business service providers.

The new law also provides a few additional clarifications. For example, it clarifies that the law will apply to all potential employees regardless of immigration status, age, or status as an elected public officer or member of a board of directors when compensated for providing actual services (although certain exclusions may apply for these individuals). Further, it clarifies who is the employer in situations involving temporary service and leased employees.

Finally, on top of all of these adjustments, the new law actually states that if a court finds that the new test “cannot be applied to a particular context,” then the determination of employee or independent contractor shall instead be governed by the California Supreme Court’s decision in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (Cal. 1989) (See here for previous CA DIR guidance). It is not entirely clear what “particular context[s]” the court is referring to. However, it would be wise to follow the new analysis provided by Assembly Bill No. 5 and not be the first employer to find out what is intended by this exception.

As there are many new adjustments with this new law, Employers Council encourages all employers engaging independent contractors in California to contact their Employers Council representative. Our attorneys are happy to assist you in determining how this new law may impact your workforce.