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New California Law Codifies ABC Test for Employment Relationship

Governor Newsom has signed AB 5, which was enacted to bring more California workers under the protection of laws that apply to employers. The bill adds section 2750.3 to the Labor Code, which will become effective on January 1, 2020. The bill’s findings state the Legislature’s intent to codify the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903. Although the Dynamex decision dealt only with the definition of employee under the California wage orders, the new statute will apply to all provisions of the Labor Code (including the Workers Compensation Act) and to the Unemployment Insurance Code. (Notably, the new law does not by its terms apply to the definition of employee under the Fair Employment and Housing Act.) Although the bill’s supporters claim its enactment will bring additional protection to millions of workers, its actual effect will only be determined as the courts decide cases under the new provision.

The new law creates a presumption that a person providing labor or services for remuneration shall be considered an employee, which may only be overcome by demonstrating that

(A) 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 and 

(B) The person performs work that is outside the usual course of the hiring entity’s business; and 

(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

The law exempts many workers from its provisions, notably lawyers, architects, engineers, private investigators, accountants, physicians, dentists, podiatrists, psychologists and veterinarians. Consult the text of the law for the complete list. The status of workers not covered by the new law will be determined by the factors identified by the California Supreme Court in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341.

The future of the new law is not completely settled. Uber has announced that it still considers its drivers to be independent contractors under the ABC test. That has already prompted a class action lawsuit alleging that Uber’s drivers should be considered employees. Uber has also joined with Lyft and Doordash to announce funding for a ballot initiative that would undo the the new law.

Contact Information
  • Pasadena Office
    3020 East Colorado Boulevard
    Pasadena, California 91107
    Phone: 626-449-2300
    Fax: 626-449-2330
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