FEDERAL COURT UPHOLDS CALIFORNIA’S AB5 ON EMPLOYEE CLASSIFICATION
FEDERAL COURT UPHOLDS CALIFORNIA’S AB5 ON EMPLOYEE CLASSIFICATION
The full 11-judge panel of the Ninth Circuit Court of Appeals upheld California’s AB5, which redefined how courts determine whether workers are independent contractors or employees. This decision has significant implication for employers across the state.
AB5, enacted in 2020 was originally purported as a general labor law that would cover a variety of industries, including trucking, app-based delivery companies and journalism. However, exemptions were later granted to workers in multiple fields. AB5 changed the law on how workers would be classified as contractors or employees. While courts previously considered a number of factors to answer that question, AB5 presumed that all workers were employees unless the relationship met a strict test, called the “ABC” test:
1. Autonomy: The worker is free from the control and direction of the hiring entity in performing the work.
2. Scope of Work: The worker performs tasks outside the usual course of the hiring entity’s business.
3. Independent Trade: The worker is engaged in an independently established trade, occupation, or business similar to the work performed.
Workers must meet all three criteria to be classified as independent contractors. This shift has resulted in many previously considered independent contractors now being classified as employees.
AB5 has undergone a number of court challenges. At issue before the Ninth Circuit was whether the law could exempt certain professions from its requirements. By ruling that the Legislature could do so without violating constitutional principles, certain professions, such as lawyers, veterinarians, real estate agents and hair stylists, keep their exemption and are not subject to the “ABC” test.
This ruling is important, in part because it reaffirms the right of state lawmakers to regulate large industries and corporations without running afoul of the “equal protection” rights of such companies under the U.S. Constitution. Attorneys for various companies are considering legal options, including whether to appeal the decision to the U.S. Supreme Court, as this decision could impact other states.
Determining worker classification has always been complex and has broad implications on such issues as worker’s compensation, overtime, and meal/rest breaks. Understanding and complying with these changes is crucial to employers. Epps & Coulson, LLP maintains a staff of dedicated professionals who carefully monitor federal and state legislation. We are available to help you navigate all your employment matters to ensure compliance. Contact Dawn Coulson at: dawn@eppscoulson.com for any questions you may have.
Information contained in this Memo is intended for informational and educational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney. It is likely considered advertising. Epps & Coulson, LLP encourages you to call to discuss these matters as they apply to you or your business.
EPPS & COULSON, LLP
Attorneys admitted to practice in California, New York, Colorado, Texas, and Oregon
www.eppscoulson.com
www.companiescounsel.com