Published
January 07, 2022
Just a few days into the new year, observers of labor policy received an unexpected gift of sorts on the 10th day of Christmas. Rather than ten lords a-leaping, however, it was the news on January 3 that California Assemblywoman Lorena Gonzalez, the author of California’s notorious independent contractor legislation known as AB 5, would resign her position within the week to work for the California Labor Federation (CLF).
Considering that Gonzalez actively pushed organized labor’s agenda as a legislator, perhaps her departure to work for the CLF should not be surprising, and presumably, she will continue to push that agenda as an employee. Nevertheless, at least this development means she cannot sponsor harmful legislation like AB 5.
As this blog has observed previously, AB 5 enshrined into law a restrictive standard for determining whether an individual can be classified as an independent contractor under California’s wage and hour law. It did so by modifying what is known as the ABC test, which some states use for evaluating potential employer-employee relationships.
Under the typical ABC test, employers must satisfy all three parts to classify someone as an independent contractor. Importantly, the “B” prong states that one can be considered an independent contractor if “the service is performed either outside the usual course of the business for which it is performed or is performed outside of all places of business of the enterprise for which it is performed.”
In 2019, Assemblywoman Gonzalez introduced AB 5, which deliberately omitted the second element dealing with the location of the work performed, and the implication was immediately clear: businesses that procure the services of individuals who never even step foot into the business’s physical location could no longer rely on that fact to classify someone as an independent contractor.
To be fair, AB 5’s modified ABC test was first articulated by the California Supreme Court the prior year, but once it became a law, it applied to all employers across the state, many of whom relied on independent contractors in a wide range of businesses. As a result, AB 5 cast into doubt many longstanding relationships.
More particularly, it forced employers to reclassify erstwhile independent contractors as employees, which meant they would have to provide overtime, provide at least the minimum wage, be responsible for payroll taxes, and incur vicarious liability for them, among other things. If they failed to do so, employers could—and did—incur stiff penalties. It also meant that some workers lost the flexibility they had taken for granted, or worse, lost work entirely.
The law’s new standard unleashed considerable mayhem on Californians and upended countless individuals’ lives and livelihoods. In short, the result was a debacle that forced the legislature to enact several more bills exempting various industries that AB 5 threatened to destroy. It also prompted a ballot initiative, which voters passed to limit the ill effects of the law. As AB 5’s author bids adieu those ill effects will live on, though, which isn’t exactly an enviable legacy.
About the authors
Sean P. Redmond
Sean P. Redmond is Vice President, Labor Policy at the U.S. Chamber of Commerce.
