SENATE COMMITTEE ON LABOR, PUBLIC EMPLOYMENT AND RETIREMENT

Senator Jerry Hill, Chair

2019 - 2020 Regular

Bill No: SB 990 Hearing Date: May 14, 2020

SUBJECT: Worker status: independent contractors: transportation network companies

KEY ISSUE

Should the Legislature repeal the current ‘ABC’ test for independent contractor status and instead apply the identical ‘ABC’ test on January 1, 2022?

ANALYSIS

Existing law:

1. Establishes a comprehensive set of protections for employees, including a time-sure minimum wage, meal and rest periods, workers’ compensation coverage in the event of an industrial injury, sick leave, disability insurance (DI) in the event of a non-industrial disability, paid family leave, and unemployment insurance (UI).
   (Labor Code §§201, 226.7, 246, 512, 1182.12, & 3600 and UI Code §§1251 & 2601)
2. Provides that, except as otherwise stated, a person providing labor or services for remuneration must be considered an employee unless the hiring entity demonstrates that all of the following conditions are satisfied:
3. 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.
4. The person performs work that is outside the usual course of the hiring entity’s business.
5. The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
   (Labor Code §2750.3)
6. Provides that, for a itemized list of occupations, the applicable test for determining if an individual is an employee or an independent contractor is the predecessor test to Dynamex developed by the California Supreme Court in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, if a specified list of conditions are met. Some of these occupations include:
7. Licensed insurance brokers.
8. Licensed physicians and surgeons, dentists, podiatrists, psychologists, lawyers, architects, engineers, private investigators, veterinarians, and accountants.
9. A direct salesperson, provided that the salesperson’s compensation is based on actual sales, rather than wholesale purchases or referrals.
10. Licensed cosmetologists.
11. Commercial fishermen.

(Labor Code §2750.3)

This bill:

1. Repeals the ‘ABC’ independent contractor test, as well as the exemption provisions described above; and
2. Replaces ‘ABC’ independent contractor test, as well as the exemption provisions described above identically, but provides that they take effect on January 1, 2022.

COMMENTS

1. SB 990, Dynamex, and Labor Code Section 2750.3:

As discussed, SB 990 repeals the existing ABC test and exemptions (Labor Code Section 2750.3), replacing Labor Code Section 2750.3 with identical provisions that will take effect on January 1, 2022. As such, there will no longer be a statutory provision for who is an independent contractor: employers and workers will need to look to case law to determine what workers can work as independent contractors.

Currently, the relevant case law is Dynamex (2018), which created an ‘ABC’ test and necessitated AB 5 and the exemptions in the first place. Eliminating Labor Code Section 2750.3 likely returns lawyers, physicians, dentists, and many others to the uncertainty of a pre-AB 5 world, which was a much more uncertain and fraught world than our current situation. Additionally, bringing back the provisions of Labor Code Section 2750.3 a year after repealing the provisions may create legal uncertainty, as an employer would be under Labor Code Section 2750.3 for 2020, Dynamex without exemptions for 2021, and then Labor Code Section 2750.3 for 2021 (but again liable for Labor Code Section 2750.3 in 2021). It is also unclear how the courts will address retroactive liability and related issues.

In short, SB 990 raises several significant legal liability questions that the author may wish to address.

2. Proponent Arguments:

The City of Laguna Niguel argues the following:

“A.B. 5, since its passage, has caused confusion, loss of employment, unfair carve-outs for specific industries, and harm to both California businesses and workers, namely independent contractors and freelancers. These California businesses and workers are now faced with even more economic uncertainty as a result of the COVID-19 (Coronavirus) pandemic. California cities, local businesses, and workers have been faced with financial implications, loss of employment, reduced wages and revenues, and much more. While California’s independent contractors and freelancers may be eligible to receive unemployment benefits, suspending the anti-worker and anti-business measures found in A.B. 5 will provide them with the flexibility of seeking work that may provide for more suitable incomes than their unemployment benefits. In addition, suspending A.B. 5 would provide cities and local businesses with more flexibility as efforts are underway to regain economic vitality.

Over 3.3 million Californians have applied for unemployment benefits since the start of the public health crisis in California. So many of our beloved California businesses are closed and may not re-open. Now is the time to provide the relief that cities, businesses, and workers need. Thank you for introducing and amending S.B. 990. The City of Laguna Niguel strongly encourages its passage.”

3. Opponent Arguments:

The Service Employees International Union (SEIU) argues the following:

“We understand the business community has used AB 5 to sow fear in workers. However, it should be made clear that the underlying problem is not AB 5. The problem is the illegal misclassification of workers. Businesses have been able to get away with misclassification for far too long, and AB 5 has now revealed the extent to which businesses were willing to skirt the law. However, widespread misclassification does not serve as a justification for stripping away the rights of workers. 

The COVID-19 pandemic has shined a bright light on how important it is for workers to have the ability to access programs like Disability Insurance, Paid Family Leave, Unemployment Insurance, Workers’ Compensation, and so on and so forth. This pandemic has shown how vital these safety net programs are for working families and it also reveals how dangerous the misclassification of workers is for workers who would otherwise be left without a safety net. 

The Dynamex decision did not create a new law for workers in California. Instead, the Supreme court confirmed in its decision that the widespread misclassification of workers as independent contractors is illegal in California and was illegal predating the Dynamex decision.”

4. Prior Legislation:

Assembly Bill 5 (Gonzalez), Chapter 296, Statutes of 2019, was discussed above.

SUPPORT

Association of California Cities - Orange County (ACC-OC)

City of Laguna Niguel

Southwest California Legislative Council

OPPOSITION

California School Employees Association

SEIU California

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